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Updated about 9 years ago, 10/06/2015
single-family into multi family
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.
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.
THANK YOU SO MUCH @NICK BALDO THAT IS A BIG HELP .
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#1 Personal Finance Contributor
- Rental Property Investor
- East Wenatchee, WA
Nice. I like the multi's. Congrats on having a debt-free house!
One rule I go by when buying multi's is to give the GRM on performing units only. Just at a glance, it's looking like a $675k property in my area. He wants $750k? HE can fix them and get them rented. What class of asset and area is this? Built in last 20 years? Never overpay @Beau Romstedt!
@Steve Vaughan As of right now there is 10 leased with 4 coming up for renewal in Feb. Buildings were built in 1992, most of the rehab is 100% cosmetic and lack of maintenance and management. The owner currently lives in the Philipines and property management company is in another town...