Multi family acquisition

[Dorian Guin]

Hello, I’m a 27 year old novice in terms of multi family investing. Currently own 4 single family rentals with no mortgage on any properties. I’ve found a great 8 unit property I want to make an offer on, and need as much insight and advice as possible prior to stepping outside my comfort zone.

[Michael Ealy]

Originally posted by @Dorian Guin:

Hello, I’m a 27 year old novice in terms of multi family investing. Currently own 4 single family rentals with no mortgage on any properties. I’ve found a great 8 unit property I want to make an offer on, and need as much insight and advice as possible prior to stepping outside my comfort zone.

Hi Dorian,

I specialize in apartments (50 units+). Here's an experience I have (I am sure you will learn a lot from this) and I documented both the good and the bad  here on Biggerpockets. 

How I Made Over $1M on One Deal

[Dorian Guin]

@Michael Ealy thanks so much I needed that inspiration. Read it multiple times to make sure I didn’t miss anything. As exciting as the end result paid off for you, that journey of the adversities and overcoming them as well is the real pay.

[Kenneth Williams]

@Michael Ealy You're an inspiration! I read your post "How i made 1M off one deal" multiple times now. Each time I discover some new gems. 

[Russell Gronsky]

@Dorian Guin, you mentioned you saw what I assume is the income statement for the last 12 months but have you seen the T-12 expenses? That will give you an idea of what expenses for the place are during all 4 seasons of the year. Also, when were the boilers/furnaces/roof replaced? Parking pads in good shape? Sewer/septic system in good shape? Deferred maintenance can kill your seemingly good deal. Also, something that doesn't normally come up in SFH expenses is bills for common areas. For example, lights in hallways and around the perimeter of the building fall on you to pay, not the tenants.

[Dorian Guin]

@Russell Gronsky thanks for the heads up, and yeah I've seen information they provided on last major repairs and also there expenses throughout the year, and with me being conservative calculating those average expenses as well as the PITI I would have on the property I'd still have a cash flow of roughly 1,300 a month prior to the other units getting occupied. And I'd still have about 35k in reserves for renovations and whatever unforeseen expenses pop up.

[Henri Meli]

@Dorian Guin Looks like you have everything well mapped out. Make sure to know the ages of the mechanicals and how much life they have left in them. For Example: How many years will the roof last before it needs to be replaced? Are you putting aside money to replace them? How about mechanicals? Will you be self managing? Are you going to hire someone to manage? If so, are you making sure to add the property management costs to the expenses?

Good Luck.

[Kenneth Reimer]

@Dorian Guin Exepctations from the property. Quick analysis is derived by taking annual Gross potential rent, subtracting an appropriate expense ratio (a percentage of income that is typically used for normal operating expenses+reserves+taxes etc.) and dividing by a market Cap rate. While this is the fastest way to analyze basic numbers, there is of course nuance that goes into it. For example, if rents are below market, one would be more willing to accept a less-than-market cap rate in exchange for the promise of raising rents and achieving a higher-than-market cap rate as a reward for undertaking the project.

[Todd Dexheimer]

The main difference is that your tenants typically don't stay as long and won't do the yard work/cleaning of common areas unless you pay them. Also, on Multi-family utilities are often broken down differently. Other than that it's just 8 SF's in one box.