single-family into multi family

[Beau Romstedt]

      OK I would like to get some advice I have a completely paid off house Proxima appraisal is about $134,000 I bought it as a fix and flip I was going to use the profits and go buy a  more fixing flips-but I found a multi family that is A 15 unit five vacancies 10 full rent for 675 a month this property owner lives out of the country. And there is massive potential to get the other five occupied quickly . And to conservatively get an extra $50 /100 a month Per unit  by doing minimum repairs and maybe just some basic advertising  . I don't exactly understand the 50% rule on cost? And with that go into play as me being a general contractor ? Would that apply?  So basically to  be debt-free single-family fix and flip  or going all into the multi family game and basically be 750,000 in debt?

Sincerely Beau.

[Nick Baldo]

@Beau Romstedt,

The 50% rule is a quick rule of thumb to help you estimate the potential operating costs of a rental property. Operating Costs = 50% of total Rents. 

This number is a starting point to help you quickly analyze deals. If you are thinking seriously about a particular investment (which in this case you are) you would want to dive deeper to obtain more realistic cost estimates for running the property. 

You mention you are a general contractor. I'm guessing this means you can do some of the work to get the property performing and/or to handle maintenance requests and repairs. While this is a great skillset to have at your disposal, you want to be sure to account for your costs in your analysis. Imagine that you were paying someone else to do the work you will do. How much will it cost? The main reason for this is that you do not want to skew the attractiveness of an investment. Imagine in 7 years you go to sell the property. Your management fees are low b/c you manage the property yourself. A potential buyer will recognize this and increase the property management figures in their analysis. This will lead them to a lower valuation of your property than you have in mind. Its just strong practice to "Pay yourself" and account for all costs....even if not fully realized. 

I sent a colleague request with a link to a rental property analysis. This should help you get started analyzing your deal. Feel free to reach out if you have any questions.