First big multifamily

[Steve Schultz]

Hello all I will be starting with my first big multifamily unit this year. I am just looking for some feedback and information on purchasing and managing a 30 to 50 unit complex. Any and all info would be appreciated. Property will be located in Wisconsin with 20% down for purchase.

[Joel Owens]

HI Henri,

IF the property is local to you and very newly built with upscale tenants it could work.

Problems happen usually because new projects run into six figures per door in cost. So investors are pushed into older properties at 50k a door etc. to afford it. These older buildings are like older cars and require more constant maintenance. The tenants tend to at lower rents have more life issues and their cash situation can change from week to week.

Just do not give yourself the belief that you put a PM in and those types of properties just throw off cash flow with no issues. If all you can buy due to down payment is older C type buildings in C type areas then you might be better off just saving up more money to buy larger later. You could also partner with someone to get larger scale and better quality or you could invest in a syndicate passively for example.

So for instance you look around and with your 200k down payment do not find anything good. Instead you invest in a syndicate with a proven track record and you and 3 investors put in 200k each and the sponsor purchases a much larger property with better quality. You then get to see how the sponsor runs the investment and makes it go.

If your job keeps you busy you do not want to own smaller multifamily buildings especially older ones. You will not have the time to dedicate to such a venture. With small scale you cannot employ a full time handyman. In this situation to keep costs low repairs get delayed and tenants either leave or fight rent increases unhappy with the level of service going on. The other option is to use retail trades to fix everything fast but you will pay 2 to 3 times the rate to fix and sucks away about all of your cash flow profit. Third is you can do it yourself and provide the labor and pay for the parts. Congratulations you have just traded your time for a job.

In that situation if you make 100k a year at your job but you have to go over there constantly multiple times a week to do repairs yourself with your time to make NOI of 30k a year you are losing money.

Anything I do these days it has to be passive for me. I make the most transacting.