Fourplex Investing

[Devan M.]

Hi Everyone,

I have yet to do my first real estate deal, however I really want to purchase a fourplex to get my feet wet. My plan is to get an FHA loan so that I only need to put down 3.5% and live in one of the units while I rent out the other three. However since I am a newbie there are some questions I have about this. For instance, how much cash should I have on hand at any given time for expenses that may come up from the property? Is it best to go through a real estate agent as this is my first property or acquire it through some other means such as a "for sale by owner?" How much time should I spend analyzing properties before I decide to jump in and go for it? Should I start with something smaller like a duplex since I'm such a green investor? I know that might be a lot of questions for one post, but I appreciate any and all feedback. Happy investing!

Thanks

[Anthony Gayden]

@Devan M. good questions. I am doing exactly what you describe right now.

For instance, how much cash should I have on hand at any given time for expenses that may come up from the property?

I have $5000 in reserves for my 4 plex. I like to have a nice sized reserve fund just in case. You have to decide how much you think will keep you safe. It truly depends on the kind of shape your building is in, and it's age. My 4 plex was built in the 1980's and was completely remodeled less than 5 years ago.

Is it best to go through a real estate agent as this is my first property or acquire it through some other means such as a "for sale by owner?

I bought my first 4 plex through a realtor, and am buying my second one through a realtor as well. The real question for you is where are the deals? If you can find good deals on the MLS, it will be better to use a realtor. If the best deals you can find are off market, you may not need a realtor.

How much time should I spend analyzing properties before I decide to jump in and go for it?

First of all, you need to set specific criteria for what you want in a property. For example, I knew that I wanted every property I buy to have 4 units, every unit be 2 bed/1bath, built after 1980, and cost less than $200,000. I also knew I didn't want any building with an HOA, and that the only utilities I was willing to pay were water/sewer/trash. I also knew the specific areas in Phoenix and Tucson with which I wanted to invest. With my criteria set, it greatly reduced the amount of time I spent analyzing deals.

You also need to practice running the numbers of the properties so that you know what is a good deal and what isn't. I actually lost out on the first property I wanted to buy in Phoenix because I over analyzed, and then one day I looked up and it was under contract. I swore not to make that mistake again.

Should I start with something smaller like a duplex since I'm such a green investor?

I had people telling me that I needed to start small with single family homes. I knew from the beginning what I wanted, and it wasn't single family homes. If you want to invest in 4 plexes, don't let anyone convince you to water down your goals.