Multi-family BRRR Deal

[Akshay Bhaskaran]

Recently did a single-family BRRR that went smoothly, and wanting to get into multi-family. Recent BRRR was a 2015 built single-family home with just flooring, paint, and other cosmetic rehabs so it was very.

Now, we have been trying to do a BRRR in duplex to get into the MF investment, but somehow not able to land on one.

Been looking at investorlift.com, Zillow, FB groups, MLS etc. but none of them are convincing. I have built myself a BRRR calculator, and the numbers (in terms of cash-flow) are convincing. But, the location of the property (neighborhood), and the level of rehab is extremely high that I feel not so confident in proceeding. And, some are out-of-state too.

Should I prepared for a Duplex or any other multi-family deals to be:
1. in Class-B or Class-C neighborhoods only?
2. generally old built at around 1850-1980?
3. requiring heavy amount of rehab (siding, foundation, roof, HVAC, appliances)?

Would like to get all your expert thoughts on what's exactly stopping me from proceeding with a Duplex deal :)  Need to know how do I avoid the "would I live here?" mindset.

[Jason Wray]

Akshay,

If your moving out of a SFH primary and claiming 2-4 unit MF as a new primary it can present an issue with certain lenders. Some lenders have a high risk alert when they see a buyer moving out of a SFH into a MF 2-4 unit. They are aware that the buyer is home hoping and occupancy may be at risk. If you are buying as a primary be prepared to write an "LOE" Letter of explanation on why your moving out of an SFH into a MF 2-4 unit.

If one of the units you will occupy is larger in GLA/bed/bath count its okay or if its closer to work or school. As far as targetting 2-4 units you can get a better deal in an area that is being gentrified. As long as it can pass an appraisal and not be "Subject to" would be wise but a little TLC is preferred versus major rehab. Age of construction may not be a huge issue if it has good bones and can benefit from a fairly cost efficient "In & Out" remodel.

What is stopping you down payment? Primary your looking at 5% Investment only 15% down. Inventory? Look everyday morning and night deals pop up fast book a tour and get in before the other buyers. If no inventory buy out of County or state...keep in mind buying out of County 50 miles away or out of state opens up the ability to buy a Vacation home only 10% down.  You can rent that out as well on months your not there and ultimately refinance down the road to pull cash out and transition into a full time LTR or short term rental VRBO to make more money.

[Akshay Bhaskaran]

Quote from @Jason Wray:

Akshay,

If your moving out of a SFH primary and claiming 2-4 unit MF as a new primary it can present an issue with certain lenders. Some lenders have a high risk alert when they see a buyer moving out of a SFH into a MF 2-4 unit. They are aware that the buyer is home hoping and occupancy may be at risk. If you are buying as a primary be prepared to write an "LOE" Letter of explanation on why your moving out of an SFH into a MF 2-4 unit.

If one of the units you will occupy is larger in GLA/bed/bath count its okay or if its closer to work or school. As far as targetting 2-4 units you can get a better deal in an area that is being gentrified. As long as it can pass an appraisal and not be "Subject to" would be wise but a little TLC is preferred versus major rehab. Age of construction may not be a huge issue if it has good bones and can benefit from a fairly cost efficient "In & Out" remodel.

What is stopping you down payment? Primary your looking at 5% Investment only 15% down. Inventory? Look everyday morning and night deals pop up fast book a tour and get in before the other buyers. If no inventory buy out of County or state...keep in mind buying out of County 50 miles away or out of state opens up the ability to buy a Vacation home only 10% down.  You can rent that out as well on months your not there and ultimately refinance down the road to pull cash out and transition into a full time LTR or short term rental VRBO to make more money.

 I think there's some confusion here. I'm not calling the MFH a primary one, it's just going to be an investment property only. 

[Jason Wray]

Quote from @Akshay Bhaskaran:

Quote from @Jason Wray:

Akshay,

If your moving out of a SFH primary and claiming 2-4 unit MF as a new primary it can present an issue with certain lenders. Some lenders have a high risk alert when they see a buyer moving out of a SFH into a MF 2-4 unit. They are aware that the buyer is home hoping and occupancy may be at risk. If you are buying as a primary be prepared to write an "LOE" Letter of explanation on why your moving out of an SFH into a MF 2-4 unit.

If one of the units you will occupy is larger in GLA/bed/bath count its okay or if its closer to work or school. As far as targetting 2-4 units you can get a better deal in an area that is being gentrified. As long as it can pass an appraisal and not be "Subject to" would be wise but a little TLC is preferred versus major rehab. Age of construction may not be a huge issue if it has good bones and can benefit from a fairly cost efficient "In & Out" remodel.

What is stopping you down payment? Primary your looking at 5% Investment only 15% down. Inventory? Look everyday morning and night deals pop up fast book a tour and get in before the other buyers. If no inventory buy out of County or state...keep in mind buying out of County 50 miles away or out of state opens up the ability to buy a Vacation home only 10% down.  You can rent that out as well on months your not there and ultimately refinance down the road to pull cash out and transition into a full time LTR or short term rental VRBO to make more money.

 I think there's some confusion here. I'm not calling the MFH a primary one, it's just going to be an investment property only. 

That makes sense making the move to a MF is a great choice more doors more cash flow.  I still think looking for a TLC 2-4 unit can be a good idea to open up the ability to upgrade/renovate to speed up the equity position and tap into the ARV to pull your initial capital back out plus in most cases enough for the next down payment.