Multi family property, I’m stuck... what to do next?

Question

Joe Marcum · Answer

The numbers on the 4plex you show are not that great, it's not even a 1% deal. Without knowing much more, I would not buy that personally.  I would suggest joining the local REIA and attend their monthly meetings. They have a Facebook group and are very active. Search Facebook for Bluegrass Real Estate Investors Group and join. There are over 1,000 members and they do not charge dues or to attend meetings.

Guy Azta · Answer

Hi Amanda,

Can only speak from experience. All my properties are out of town. I am not interested in managing anyway, as I am too busy with my life and work. I do own a 4-plex that currently rents each unit at $700 and I bought it for $135K. Now, that property had all tenants move out around the same time, for various reasons. Was combination of evictions and breaking leases. We don't know exactly what caused this "mass exodus" (it's not poor management), but the point is that it was sitting vacant for a few months. Not only that, but there were various repairs needed. All in all, this cost me a good few thousands of dollars, and we just got the dust settled. The moral of the story is that if you end up overpaying, situations like this could end up being a nightmare. In this particular case the acquisition price was low enough to mitigate these issues.`1

You mentioned you like to fix everything yourself. Again, as a business owner (not in real estate), I cannot see why anyone would want to fix their properties, as I would assume you have a career to pursue, however I think you mentioned your husband is a contractor, which makes sense. The solution I found is to get quotes from the property managers, and if I think the quotes are high, I will contact local contractors or trade people and get additional quotes. It takes a little time and effort, but over time you make some contacts. I actually own 9 properties in several markets and they're managed by 7 different property management companies. I found that for the most part, most repairs are pretty small and the amounts are reasonable. If I have a question, I ask. I'm not a nickel pincher and real estate is not the bulk of my income, so I don't sweat a $70 plumbing bill thinking it could have been $35. On the balance, I find the expenses to be pretty fair and square. You just have to find the right company to work with.

Over time you can assemble a good team of contractors to call on for the 4-plex or whichever property you buy out of town, or you may discover that the property management company is fair and reasonable and can offer you quality work for reasonable prices. I would say that if you are the type who frets over every line item and gets upset at the thought you could have done it for less, it may not be worth the emotional price. Some people don't factor the emotional price into investments. Quality of life matters as well. It pays to know thyself and choose what to do and what not to ;-)

Good luck!

Terry Lao · Answer

@Amanda Major

@Amanda Han

I live in southern California, and invest in Las Vegas. Your distance is nothing compared to my 4 hour drive each way. The home prices in southern California is way more drastic than Lexington. I look for properties within driving distance. One to four hours is reasonable. Also, if you decide to drive, it is .53 1/2 cents per mileage deduction, which for me in Las Vegas, is about 700 round trip, or about $350 tax deduction each trip. Also, Las Vegas does not have state tax, I don't think Lexington does away with state tax. In my situation, those are just two major advantages.

I have a handyman that lives in the complex of one of my 4plexs. It makes repairs easy and reasonable. To collect rents, I have the tenants direct deposit rent to my Bank of America account each first of month. Just need bank account number and name.

Any issue can be resolved by phone. For example, your current rental in Lexington, has any issue or situation did not first happen with a phone call from tenant. Then its either you go there or your handyman husband. Consider a home warranty, as covers most major appliances, plumbing and HVAC seems to be the biggest issues.

Overall, you are considering a 4plex property for 240k, and rents are 610 monthly, you are barely at the 1% rule. If there is any HOA, then it would be a no go. But don't let 1 hour drive scare you away.

Terry

Greg Moss · Answer

@Amanda Major

Strictly from a financial point, I don't know if you mean your looking to branch out on your own and not invest with your father, if that is the case I think you are stretching yourself too thin. a 240k property with 25% down is going to cost you 60k plus closing cost, you are going to need about 70k to comfortably get this property. Even with a Heloc on currently equity you are stretching very thin.

If you are looking to branch out on your own, I would build up the cash reserves for another 6 months and then look to get into something, or look for a property now in the 120-150k range.

Omari Bookal · Answer

Amanda, the housing market in Central KY is quite hot right now (as you already know) so it is going to be  difficult to find good mathematically feasible deals from searching the listing sites and getting MLS links.This is where your networking and creativity skills will have to shine to get the property you want in the area. It has been like this for the past year and inventory is getting lower and lower. I heard a rumor that studio style cardboard-box rental may be in pretty soon...

Having a property an hour away is not a bad deal if it cash-flows but does it still cash-flow with you hiring a property manager who can take care of the immediate issues, IF you're not willing to drivie 50 -60 min to address any/ all tenants issue.s. For some people it's may worth the drive to save the $$$ for others not so much... Especially if you get a call while wrapped in comfy sheets haha

I would say focus in your local niche and really do come creative searching and investing to get that property  you truly want in your portfolio.

Good Luck in your searches and like @Joe Marcum said, join the REIA group, there is nothing but great helpful people on there!

Todd Dexheimer · Answer

Have you been calling your local brokers? Lexington area has deals, but you need to contact the local multi-family brokers to get them. Go to loopnet to find the brokers in the area.

Mike Albani · Answer

Greg: Where would you find multifamily properties for 150K?

James Wilcox · Answer

@Amanda Major welcome to BP and it seems you are well equipped for a long journey in REI. Glad to see someone from the area that is the same age as myself! Woo hoo! As Joe has mentioned you need to come to the local REIA. Great opportunity and absolutely free! That is some good ROI!Even though you have a lot of property management experience, I would not recommend managing this property yourself if you do purchase it. Your local hospital job and the other rentals probably keep you pretty busy as is. Can you handle 4 more units to that load? Do you want to handle 4 more units? That is something to consider. However, the biggest downside to this situation is the distance. Are you or your husband going to drive an hour one way to check on the property or do maintenance? Managing at this distance can be challenging (I have been there). Whether you manage yourself or not, you do need to plan for management costs in the future. Do you want to be a manager your whole life or an owner? Good luck with all your future REI ventures!

Ingrid J. · Answer

@Amanda Major Good job on getting started. I know what it's like to feel stuck in a pricy market.

I will second what Todd says and ask: How many multifamily real estate brokers have you reached out to? You can find a bunch on sites like Loopnet or even here on the forums.

Multi family property, I’m stuck... what to do next?

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