How do you decide on your buy box when you're brand new?

Question

As the title suggests, I'm brand new to real estate. I'm reading and watching and listening to everything I can, and I know I need to figure out  a clear view of what my buy box is going to be. But I'm stuck at how to decide that. At this point, I'm looking at small multifamily in my state (NH) that needs some work, but I'm not able to answer "exactly what region?" or "how much work?"

And because I'm looking at places that need work, estimating rehab costs and ARV is a whole bag of worms that I don't have the experience to estimate well, so I don't believe my analyses of deals is too entirely accurate.

So is figuring out the buy box at first just a matter of finding something that looks half decent and running with it? I know I can't expect to hit a grand slam on the first one.

Joshua Tessier · Answer

For me I define my "Buy Box" based on what I am comfortable with monetarily . I am also in NH and invest here. For me lets assume a 3 unit in Manchester is going to run you $400,000. It's in decent shape but could use some rehab so I figure $30k in rehab and 20% down so I need $110,000 liquid to make this happen. I also assume it'll be a box of worms when it's opened up and that rehab will turn into $50k. The question is do you have $130k that you can access? If not then that's not your buy box. You can't do the rehab so maybe a more turn key $450,000 3 unit is your goal that you can owner occupy with 5% down on an FHA for $22,500. Maybe that's your buy box.

If your sitting on a ton of cash then what motivates you? Do you want to provide housing to as many people as possible and those low income class D sounds exciting? Does dealing with people with great pasts and lots of disposable income sound appealing then the way to go might be a big money appreciating class A property.

Look inside and figure out what motivates you.

If your sitting on a ton of cash then what motivates you? Do you want to provide housing to as many people as possible and those low income class D sounds exciting?  Does dealing with people with great pasts and lots of disposable income sound appealing then the way to go might be a big money appreciating class A property.

Look inside and figure out what motivates you.

Bryan Noth · Answer

Such a difficult question and also highly individualized.  I believe it comes down to your capacity, your risk tolerance, and your comfort level.

• Do you have the cash for 25% down on a SFH and financing the rehab?  This makes for a low stress BRRRR
• Are you risk adverse?  If yes stick to straight forward rehabs and keep a reserve amount for when the unexpected arises, not if.  
• Lastly, what fits for you?  STRs?  Buy and hold? Flips?  Potential upside on a highly distressed property?

I love straight forward rehabs.  Even if it's everything inside it's replaceable and that's fine by me.  When someone mentions adding a bathroom or moving a wall the risk/reward alarm goes off.  I will take those but they also tend to take up a lot of mental space when managing the project.

If the stars aligned @Reese Chappuis, what would be your ideal first project?

Jeremy Nault · Answer

@Reese Chappuis NH has some great opportunities if you are looking at small multifamily properties.  I have a couple of duplex's in the Manchester area that I was able to purchase using the house hacking strategy.  These properties that you are looking to invest in, would you also be looking to live in one of them? If so this could open up a lot of doors in regards to financing. If you have any questions, please feel free to reach out! Good luck with your investing!

Sean Delisle · Answer

Hi Reese,

My experience in this market is multi-family owners are more receptive to accepting FHA loans offers than sellers of single family homes.

I just put a new investor under agreement with a very nice 2 family in Manchester, NH. Because he was a new investor, I recommended that we try to find a property with an actual concrete foundation as our baseline. Many of the multi-families were older and had stone or granite foundations. I found it off market for him. It was very close to the Eliot Hospital in Manchester NH. It was built in 1984, 2 units split style, new roof, siding etc... it even appraised for $10,000 more than his purchase price. He's pretty pumped. I showed a 2 family in Nashua NH yesterday to a buyer.  What he liked about the property was that is was on a quiet street and about a block away from an elementary school.  The close proximity to the school and the property spacing is what got him to go see it.  Ultimately, he felt the property was a little small.  It needed a fair amount of updating, rents were low and tenants wanted to stay.  Landlord would evict if necessary, but this buyer, like you is still trying to figure out his buy box.

If you're local, I'd definitely drive the areas you are considering. Then start asking around....and of course BiggerPockets is a great resource!!

How do you decide on your buy box when you're brand new?

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