First Homeowners Loan for 4-unit apartment

[Matt Davis]

Hello all! I currently have a goal to acquire a 4-unit apartment building using a first homeowners loan to build passive income. My long-term goal is to expand and obtain larger apartment buildings and create good income. I'm not sure what state I will start in. My main objective, in the here and now, is to acquire as much knowledge/skill --becoming a PM, improving communication, marketing, etc. -- as possible to ensure that I am as "ready" as possible when I am in a solid financial state to pull the trigger!

My financial current state: 

Minimal debt, roughly 1-2k on credit cards and declining

Annual Income is 50k. I am in talks with a friend who is interested in joining me in this pursuit. Combined income would be roughly 95k.

I only have 5k saved as I wrap up knocking off debt mentioned above.

My questions are:

1. What type of risks would I be exposed to given that this type of loan can't be under an LLC? I am aware of the general financial risks associated with investments. I was thinking along the lines of someone being injured on the property or any other situation that I can't imagine.

2. What are some failures/obstacles that you have come across and what did you do in response to overcome them?

3. What are skills/certificates/associations can I gain or acquire that will help me in this endeavour? 

Thank you, in advance, for all the feedback! 

[Zachary Ware]

Hi Matt,

First off I think you have a solid plan in place. As you stated, I would pay off your debt and start savings as you are going to want not just the down payment but also reserves. Having 3 - 6 months of payments in reserve would be ideal at purchase. This will really depend on what you are comfortable with, what your lender will require, and what condition the property is in. If you are having to lease up the property, I would want more reserves than if 3 units are leased for the next 12 months. Finding a 4 unit that cash-flows is pretty tough but not impossible. I would speak with a Lender and find out exactly what type of financing you can get to start. This will help you narrow down the property you are looking for greatly. This will help you answer 1)What type of property you should be looking at 2)What price range you should be looking at 3) What kind of cash flow you need 4)If you need to bring in a partner. And honestly, there is nothing wrong with taking some time to build up your cash while learning more about investing. BP is a great place and I would recommend taking the BP House-Hack Bootcamp. I thought there was a lot of great material and even better connections to make! 

Good luck!