Questions to ask on an 8-plex

[Chris Kittle]

Good morning!

I have identified an 8-plex that I am strongly considering purchasing.  This would be my first foray into multi-family of any kind and I want to be sure I'm not missing something.  So far the costs that I know I need to think about are as follows:

Loan

Insurance

Taxes

Snow removal?

Property management

Set aside emergency money for CAPEX

Each unit has its own electric meter so the tenants will pay that on their own.  I need to check out how the water bill works.  What else am I missing that would be a common expense?

Also, any thoughts on loans?  I can pay a large chunk (maybe 50%) in cash if I need to.  What should I be looking for in a loan?  

Thanks so much for your help in advance!

[Joshua Christensen]

Good morning @Chris Kittle,

This is an important question and good on you for asking.  things missing in your list (everyone manages differently, so take it with a grain of salt)

Vacancy rate

Turn over

bad debt 

legal fees (evictions as needed)

accounting fees for professional tax prep

maintenance

Property Taxes

Sales Tax on PM fees (In NM, this is charged, not sure about where you are)

Reserves for replacement CAPEX - furnace, water heaters, ac, roof, parking lot, etc.

Admin, software, advertising, etc.

Cost segregation study for accelerated depreciation capture

As for your loan.  Even though rates are high right now, there is an allure to variable rates every time rates are in a down cycle.  That is something to consider.  On commercial loans, it is not uncommon to see 25 year terms or balloons in 5-10 years.  

Look for loans with lower prepayment fees if you refinance or sell early.

On an 8plex, a local / regional bank or credit union may have favorable terms with rates, term and fees.  

Best wishes to you.