Would you recommend a 9 unit apartment building for a newbie?

Question

These are the details I have...

SP. $269,000 (probably get it for 250k)
9 Units 4 x 1 bed and 5 x 2 bed
100% occupancy (maintained for 12 months)
Scheduled Gross Income  62,100
Effective Gross Income  55,027

The question I have is whether or not a 9 unit building is a bright idea for someone new to the game.  I don't want to delve too deeply into the thing if it's not a wise move for someone completely new to the game to take on an apartment building.

Joel Owens · Answer

How much money do you have for this deal?? Is this local or out of town for you?Is the current owner self-managing or is a PM company in place with along standing great track record??

What do the other buildings look like around it??

You really need a local investment broker who can help guide you in making an informed decision.

Bill Gulley · Answer

The biggest difference between men and boys is the size of their toys! I don't think the sq. ft. or the number of toilets or doors has very much to do with it as your time to contribute to your rental business. It also depends on your personal financial position as you could simply hire things out and simply be an owner, so it depends on what you expect to make at your job, the job of being a landlord.

I'd just suggest, if you're not real handy, to stick with newer buildings that won't require constant maintenance and updating to get you started.

Mark Updegraff · Answer

From your statements, I think you need to get a figure on how much things cost to renovate.  They are not cheap.  Even if you are very handy and working for free, things are still expensive.  That is why everyone is advising you to start small.  If you're predictions are off and you buy a 9 unit, multiply the damage by 9.

I agree with the consensus, start with a SFR, Duplex, triplex or quad.  The more confident you are in your abilities the bigger you can go.  At 9 units that need work... you could easily make a mistake on improvement costs.  You'll have holding costs during improvement, vacancy, labor, materials.... when things are bad count on a couple days of demo alone...

If you're going to skimp and 1/2 arse the repair work,then why even bother?

For starters, evaluate it as-is with the current rent roll.  Make sure you look HARD at the major expenses & issues.  Roof, HVAC, water heaters, flooring, drywall, ceilings, kitchens, baths, foundation, parking, location, etc

Best!
Mark

Brad Z. · Answer

I think everybdoy probably has a little different first deal story but I would recommend starting with a single family and managing it yourself. It may not seem like the most profitable deal in the world but you will learn alot and start to understand the business.

Once your comfortable with that, you can start to look into a little larger properties. I think managing 9 units with your first deal would be alot and if you hire out a PM, they may take advatnage of you if you dont know what things should truely cost.

I could be completely wrong and there may be others that disagree but start small, understand the business (its not all glamarous), build your model, then start to grow.

Jay Neaves · Answer

To be honest, I haven't looked too far into it at this point because I wanted to see if consensus of opinion was that it's too much for a newbie to get into.  So I'd need to look deep before I leap and I can't give answers to some of the points you guys have raised right now.

What I do know is that it needs work and that the reason it's at 100% occupancy is the rent is stupidly low.  My guess on the minimal diligence I've done, is that it's run down and the guy is keeping rents low to keep occupancy up.  My plan would be to rehab the apartments to a decent standard off the bat and then do a big overhaul on them over time.

I think it's probably too bigger steak for my appetite off the bat, but it's definitely an interesting prospect.  I know that most apartments in that area are $300 a month more than this guy is charging right now.

Jonathan Sowinski · Answer

Besides owning our own house (3/3 dbl) our first deal was an 8 unit, and as Bill mentioned it is NOT a newer building, BUT I am handy.  It has worked out for us have been able to turn around 2 units for a 45% increase in the rents (was $500 now $725) with less than major work.  I would agree that if you are planning to manage yourself it will help a ton if it is local.