Getting started in Multifamily Investing

[James Ryan]

Hello Everyone,

I have been researching real estate investing a lot in the past six months trying to learn as much as I can before getting my feet wet and jumping in on a property. After doing my research I have decided that I would like to pursue multifamily homes due to the increased cash flow and also the separate rent payments from the different units helps spread the risk instead of relying on one rent check from one family. Upon doing some research on homes in my local area I have come across two houses that were both multi units, one was a duplex and the other was a quad. Upon looking into to the two houses I came across the rent for the two apartments or projected rent. The duplex brought in $2400 where the quad brought in a total of $2500. This is where I started to wonder regardless of if these rents were accurate or not. If there were two houses that had almost the same income but one was 2 units and the other 4, which would make the better investment. At first thought, I said the quad but then after a little while I started thinking that I could only imagine four families living under one roof could get hectic and make the turnover rate of the quad higher than the duplex. If that was the case then the duplex would be better, on paper any way, but then on the other side the duplex is spreading your risk over only two units so if you loose a tenant that is half of your income, where as in a quad when you lose a tenant its only 25% of your income. I wanted to just ask for any advice on this topic and my example of the two houses with very similar income but split over two units and four. If you came across this scenario which would you lean towards and your reasoning behind it.  Also any other advice for a young investor looking to get started. 

Any and all advice is appreciated and I would just like to say thank you for taking your time!

[Alex Schmidberger]

Hello James,

Welcome to BP. This was a great place to get started with all the information and helpful folks around.

I ran into a similar question as I am in the process of buying my first quad. Here are some things I always consider when comparing different properties.

• Age of the building. This leads to setting a percent for repairs and cap-x.
• The taxes for each unit (can usually be found on the county website).
• Who pays what expenses/utilities.
• Insurance cost for each.
• Parking availability for each unit. Its the little things that can really add up.
• Average rents for the bd/ba combos for each property in their area. 
  • Check to see if the rents they are currently collecting are above/below market average and could these be raised.
  • Some places to compare rents for that area are rentometer.com, zillow.com, craigslist.org.
• How much it'll cost to bring each unit up to rental-able condition. This I add to my down payment amount.

There is more that can be considered, but these are usually on the top on my list of information to gather when doing an analysis.

Hope this helps.

Alex