Handyman · Valley Center, KS · Member since 2011 · 10 posts · 0 votes
Hello all!
I'm currently a senior in an engineering program, and at the end of this spring, I'll be looking for a place to stay. After I graduate, I'd like to purchase a small multifamily home, possibly a fixer-upper, and live in one side while I rent the other. Firstly, what do you think of this strategy as a way to get into the rental market? I currently have about $7k in the bank to start out with.
Secondly, I've found a multi-family home in a neighborhood close to the college that is very similar to what I'm looking for. The neighborhood looks rough, but the property is one block away from a police station. You can see the back of it from the house. I don't know the exact crime stats for this area, but from what I can tell, most of the folks that live around the campus are low-income and college students. How do you think this will impact the value of the property/the rent that I can expect from renting the other side? The property is 1,100 ft^2, 4 bed, 2 bath. Zillow has it estimated at $55k. Sign out front says for sale by owner.
i would get in touch with a realtor to see if they can provide FMV of units of similar type in the area and also what rents are going for. i wouldn't trust zillow since i think they pull the value from the tax appraisals which can be far off at times.
as far as low income neighborhoods i wouldn't let that deter you from investing in those areas. some of the sfh's in the low income neighborhoods that i have are out performing the ones that are not. i would talk to neighbors, drive by at night, or pull crime reports to see what type of activity goes on in the neighborhood.
I like your idea Drew, I wish I would have purchased a multi-family as my first property!
The important thing to figure out is what you can get with your money and how much of it you want to spend. You can purchase a MF property through a conventional lender as your primary residence. This would probably be the best route for you as they have have softer down payment restrictions.
I would recommend talking to some loan officers in your area and seeing what you would qualify for and what type of down payment you would need. I put 3.5% down on my first place with an FHA loan. There is also a semi-local bank here that will do a 3% down loan with no PMI for lower income candidates.
Unless you feel really comfortable in the area, don't let the police station in the backyard ease your mind. There is a reason the property estimated at $55K. If you are serious about a property, you need to find out the rents, the comps in the area, the direction of the neighborhood the quality of the building etc, etc, etc.
It could be an excellent investment, but you have to know the market and the neighborhood first and determine that on your own.
i would get in touch with a realtor to see if they can provide FMV of units of similar type in the area and also what rents are going for. i wouldn't trust zillow since i think they pull the value from the tax appraisals which can be far off at times.
as far as low income neighborhoods i wouldn't let that deter you from investing in those areas. some of the sfh's in the low income neighborhoods that i have are out performing the ones that are not. i would talk to neighbors, drive by at night, or pull crime reports to see what type of activity goes on in the neighborhood.
Zillow is typically high, so correct to ignore that, or discount it heavily. It does not pull from tax assessments, but actual sales, in a very crude fashion. It doesn't make distinctions between properties nearly well enough, and operates on a time lagged basis, especially bad in a down trending market.
Yes, get long term fixed rate conventional financing. As long as you live there at least a year or so. You cam keep the low rate loan forever, even after you move out, very nice hedge.
Definitely look into getting a FHA, since you plan on occupying the other side. You shouldn't have a problem renting it out due to its proximity to a college. If you do buy a fixer upper, just rehab it, bring it back up to market value, get an equity line credit of the difference and leverage that into another fixer upper, rinse and repeat, that is of course if you're trying to do this to the fullest.
Thanks for the great advice! How do you guys typically deal with a "for sale by owner" situation? A better question, I guess, is what should I NOT do in this kind of situation? I don't have much (read none) experience purchasing properties, and so I don't want to look like an idiot when I ask to see the property.
Sounds like it could work out to be a nice deal if you get a place to live and have a renter pay your mortgage payment and possibly other expenses. The only thing I would be hesitant on is if the area is that bad/dangerous will you feel comfortable living there?
Peace of mind and safety is more important than money
I would assume making sure you have financing lined up, along with an appraiser, and inspector. If it's truly FSBO, you'll be saving some coin since real estate agents won't be getting paid.
Look up 50% rule here on BP and study the heck out of it, including the various opinions regarding the "rule". Start educating yourself on what the rent comps are in the area. This should be as easy as driving around the area and calling for-rent signs and asking how many beds. baths, utilities included or not (you should find our if your potential property has seperate meters or not also)and how much the rent is. If you can see the police station from the back door, I wouldn't worry about my safety right at the house. You are already aware it is a less than desireable area and are still considering the area, so your decisions should be based more on cash flow and exit strategy.
When I first looked into investing in real estate (I only have one SFH in a low income neighborhood right now) It was pointed out that one of the biggest disadvantages of multi-unit properties is that your buyer's pool is WAY limited when you want to sell. If you invest in a SFH, you have a bigger pool to sell to and can more easily sell at retail, whereas *usually* only investors are looking at muti units and most investors are going to only be buying if there is a big discount. So that means you have to get it at a big discount just to break even upon your exit. And it can take longer to unload. But if it is cheap enough and generates enough cash flow, the cons in the deal could be outweighed.
Another con is that low income properties require more attention (usually), so if you want to move, you will have to be sure you can get a PM that you can trust. And the property will need to cash flow even if you aren't around to do stuff yourself. I am an engineer as well, and, given this economy, mobility can be a huge asset to a young EIT's career. Not saying you will have to move, just a consideration.
What to look for in an owner financed deal is that the numbers work out so tha the property is profitable. Try to get no down payment and no interest payments and negotiate from there. If the terms the seller will agree on aren't conducive to good cash flow - don't do owner financing. You definitely have the skills to do this analysis. Just make sure to account for all the "details".
great thinking, the way I look at it is if you can get it for 10k or so, you can't go wrong. This leaves you enough money to get yourself a gun and a bullet proof vest! LOL!
I am joking, I would not pay too much though in a war zone, don't take out a loan, try to pay cash or get them to carry paper. Treat it like a giant ATM machine. I look at like after you collect a bunch of coin oner a few years and if you had to bulldoze it, you could and not care too much! :mrgreen:
Drew,
You may want to check out this article: [REMOVED]
I basically feel that troubled neighborhoods are outstanding emerging market investment plays IF you're willing to care about people. Tough neighborhoods are great for double bottom line investors.
I am afraid there is not enough information to truly evaluate your deal. Please find out comps, rents, mortgage, expected expenses, your income and reserves after purchase, etc. etc. prior to buying. Look at the structural elements of the property. Interiors and cosmetics tend to be less expensive and you may be able to do these yourself to save the bottom line. Look at about 30 properties and ask youself if this is truly the 'deal' after comparison. BP has a plethora of information to help you evaluate your choices.
@Brian What I'd like to do (again, let me know what you guys think about it) is to purchase the property as a long play. I'll live in it for a few years, get it repaired and established with a tenant on the one side, and fully paid for. Once that happens, I'll find another rental to do the same to. Fix it up, live in it a while, find a tenant for it, and then shop around for another property once it's paid for. Rinse and repeat. I don't intend to sell for a while, if I can help it.
This way I'll be familiar with all the quirks in the property, I'll have ample time to fix it up without having to worry about finding a tenant, or about making several different mortgage payments. There's not much campus housing at the university, so there's a fairly consistent demand for rentals in the area.
@Gerv You're right; there's still a lot of information I need to find out before I can know if it's a property worth pursuing. I checked the county's website, and the last appraisal (2010) was $33k. The owner doesn't live at the address, either. I think one side was rented, and from what I could tell, the other was vacant.
@Al I hadn't realized it until I really started reading BP posts and articles, but investing in rough parts of town really is a community service. Landlords get a terrible rap when in reality they're often the ones putting the most effort into getting properties and neighborhoods looking nice again. That's what I'd like to do with this one, and hopefully others in the future.
@Gillespie Ideally I'd like to pay cash, and if I'm able to get a decent job out of school (cross fingers) I'll probably end up doing just that. I wouldn't say the area is a war zone, although there are areas about 1-1.5 miles away that are pretty bad. There's a reason a police station is in the area. I've been going to school around there taking night classes, so I'm pretty comfortable with the area.
I'm planning on calling the guy tomorrow sometime and I'd like to ask him if I can see the property. What are some things that I definitely need to ask? What are some red flags to watch for? If there is a tenant in the property, how will that affect a deal if I decide that the property is worth pursuing?
You guys are great! Thanks for the fantastic information!
Drew, I assume that with majoring in engineering and being in Valley Park, you are attending Wichita State and the property is near the campus. I graduated from WSU in 1999 and lived 'near the college' my senior year. For as much as I heard it was a "bad area" I was surprised that it really wasn't that bad to live there.
It's been awhile since I've been in Wichita but the little that I know about real estate values, I would doubt that a duplex near the college is worth $55k unless it is in absolute top notch condition.
I had an opportunity to buy a house for $10k while I was at WSU. I kick myself for not doing it but at the time I was mainly concerned about where I was going to end up after college and how I would manage it. I was/still am friends with the next door neighbor so I probably should have done it as I would have started investing in real estate at an earlier age.