multifamily worth it?

Question

hello bp !!  Well i have some questions regarding multi family, it seems like every google search brings up mfu post from like 08 09'  so I was just curious to know how many out there Currently (2015)  own MFU properties? In what markets?  How many units 2,3,4? Has it been smooth to manage or have there been tons of issues?  Also are you profiting? If so how much ? What kindve financing and amount of down payment did you use? And what kindve renovations nd repairs were made over the year? And is maintenance expensive?

Sorry to be so nosey in your business but im looking for a bit of motivation here lol.

Me and my gf are biting the bullet and we're moving in with her parents in january . We will be using our tax return to pay off any current debts and she will be getting a secured credit card to help boost her credit a bit more Which is already at a 720.  We will be living almost rent and bill free paying just 300 for rent no bills buying groceries here and there and paying her car and allowing ourselves a bit of spending money. This will allow us to save 2500 a month maybe more by january 2017 we hope to have 30k cash plus our tax return usually near 8k and will continue adding to the savings while we look for a property.  Overall goal is to have 40k by the time we find our unit. Originaly i wanted to use this cash to qualify for a hml or private loan somewhere and do our first flip. However after speaking with a few succesful investors and 2 very cool succesful lenders everyone has advised me to not gamble with my money at first and invest in a rental primarily a MFU using a fha loan.  We love the idea of living rent free and being able to have the extra money go into savings for future investments.

Currently in las vegas, nevada ive seen fourplexes i wouldnt mind owning and living in going from around 170k to 235k  with average rent being 750 a unit. So what im seeing is a 200k property okish area with 25k down  at 5 % 20 years with tax and insurance monthly should be around $1400, if i can rent all 3 units for 750 that leaves 2250 income after rent 850 minus 50% towards property , would leave me with a $425 cashflow? And after i move out a year later my unit will become an additional 750 in cashflow?  Resulting in 1175 a month cashflow?

I hope im understanding this all right lol

if not let me know and please answer my questions lol thanks for all the help and support!

Michael Seeker · Answer

@Rito Altamirano - That's a lot of rambling...if you compose your posts a little better you may get clearer responses. In any case, I'll take a stab at answering some of your questions from the first paragraph:

1. how many out there Currently (2015) own MFU properties? Lots...the number of MF properties haven't done anything but increase since '08/'09 and somebody owns them all.

2. In what markets? I own a handful of multis in Louisville, KY.

3. How many units 2,3,4?  All of mine are 2-6 units

4. Has it been smooth to manage or have there been tons of issues?  This depends on your definition of "smooth".  Management has been business as usual which includes some ups and downs.  Nothing that would scare me away or encourage anybody to avoid being a landlord.  It is not a one-time transaction with residual checks coming your way the rest of your life.  If you want to make money, you have to work at it.

5. Also are you profiting? If so how much?  Yes.  I'm averaging right around $200/unit/month (with an abnormally long early 2015 winter vacancy to boot).  That does not account for any loan paydown or depreciation, that is just pure cashflow.

6. What kindve financing and amount of down payment did you use?  Commercial financing with 20% down.  In some cases, I used a hard money loan, did repairs then refinanced.

7. And what kindve renovations nd repairs were made over the year?  All kinds.  I've done just about everything myself at one time or another and hired out just about everything once I had more stable financials and could afford it.

8. And is maintenance expensive?  Not if done properly.  Many landlords will ignore problems or put off doing a needed repair because they don't have the funds to do it (or are just lazy).  Not only does this lead to more costly problems but it ruins your relationship with the tenant and puts your rental income in jeopardy.  It all depends on how you run your business.

Michael Seeker · Answer

Not sure if those were new construction buildings you saw but I saw a similar pattern while visiting a friend in Austin and I can assure they are not overbuilt...demand is much higher than supply there.  The place my friend lives at is new construction and they offer a first month concession in order to get a higher rent the remainder of the lease.  The way they explained it to him is that your rent works out to $15xx/month even though you're lease is for $17xx.  Well, the rub is that the builderdeveloper is probably trying to sell the building to some fund or investor and if you multiply that extra $200/month in rent by a 5% CAP rate they (the builder/developer) will net roughly an extra $50K in additional sales price when they sell.  For every single unit.

Not saying the same is happening in Vegas, and you're probably right that the impetus is vacancy issues.  Just wanted to point out an alternate scenario where concessions don't equate to vacancy issues.  Knowing what is going on in a market is a very important piece of the investing equation.

Rito Altamirano · Answer

2.) Ive been told and read that you can use potential rent from the units to help qualify for loans , is this true and have you ever been able to utilize this?

3.) What are the average purchase price for a decent 4plex in your area? Curious to know value on the opposite side of the states.

Thanks again !!

And hopefully if anyone else responds they can be as detailed as you were!

Rito Altamirano · Answer

Thanks alot for a very detailed response!! Im glad things are going good for you.

Few questions

1.) when it comes to loans have you had issues obtaining multiple loans in one year ?

Were hoping if things go well with our first 4plex purchase we can obtain a second and third 4plex one under

And sorry for all the rambling i realized when i was typing that i was doing so lol.

William Morgan · Answer

There is the local investment association Kreia. Also a few BP members are meeting up next week https://www.biggerpockets.com/forums/521/topics/253225-meetup-in-louisville-ky-meet-network-learn-on-site

Jeff B. · Answer

I was shopping in Vegas - - until I saw all those rent concession signs - -

• Move in for $1, First month Free!!

It doesn't take a PHD to see that Vegas is over built and these concessions show the vacancies are a nasty problem.  If it was not, landlords would not be giving away profits!

IMO, location location location and Vegas aint it.  So your first action IMO, is to pick a different market.

Moving on the question MFUs - - YEP, my forte and retirement plan,  good cash flow over the years and (after 18yrs) 100% appreciation.

Michael Seeker · Answer

Not sure what this means so don't know how to respond...

Michael Seeker · Answer

@Rito Altamirano - to answer your questions:

1. when it comes to loans have you had issues obtaining multiple loans in one year ?  No I haven't had issues funding good deals that I can afford.  My investing and financial situation is likely very different so whether I've had issues or not doesn't mean anything for you.  If you are just starting out and trying to do 30 year financing with a residential lender (same lender you'd use to buy a house) then you will probably have a hard time getting loans for multiple properties.  They have firm rules and they do not consider anything that doesn't fit those rules.  If you use a commercial lender then it will depend more on their comfort level with you as a borrower.  The best people to ask are the ones who are in a position to loan on a property.

2. Ive been told and read that you can use potential rent from the units to help qualify for loans , is this true and have you ever been able to utilize this?  Depends on the lender and type of loan as well as your personal financial situation...see #1.

3. What are the average purchase price for a decent 4plex in your area? Curious to know value on the opposite side of the states.  Average price per unit for turn-key multis in decent parts of Louisville ranges from about $50K to $100K, so for a 4-plex you're looking at around $200K to $400K.

multifamily worth it?

Most Popular Reply