Start small or go big?

Question

What would you tell a first time investor with 80k to invest?

Start out small and buy a SFH rental or go big right away by maxing out loan potential and buying MFH?

Note: In the area I am looking, there are 4 plexes available for around 180k, but they are outdated. SFH are available for 120k (need work also)

It would make sense to me to go MFH but is it smart to max out your credit right away?

Question 2: If units are rented when you buy, do you kick out renters to remodel and then relist rentals? Or would it be better to keep them for a while to recoup some money and then renovate sometime down the road?

Andrew S. · Answer

Starting with a 4 unit is reasonable. Keep existing tenants, renovate as they move, bump up rents to fair market price after fixed up.

Dennis Wayne · Answer

You’ll want to get to ten units as fast possible . There is safety in numbers I’d recommend scaling out as quickly as possible . Having one or two rentals is not going to make life easier for you and any little vacancy is a killer canceling all cashflow. The more you have the more income and buffer for when things go bad .. and things will go bad

Jim S. · Answer

I disagree with going as big as you can as fast as you can. It's a good way to get in over your head. And If you don't have reserves for vacancies or a furnace/roof now you have a unit you can't rent or you can't make payments. A 4 plex would be a good started. Leave existing tenants until they move or you have the funds but you always need to have reserves.

Lorenzo Pinkston · Answer

For first timers... It is best to just put your feet in the water. Take it slow and steady. If you are purchasing Multi Fam... If the tenants have a good track record of paying on time (get proof from the seller or realtor), keep the tenants and give notice later of renovation and possible rent increase after a year. I think it is always best to start with fresh tenants. Old tenants may have old habits that you don't want to be bothered with. Get as much money from a lender as possible for the purchase so you can hold on to most of your your liquid cash. But start small and maximize the potential.

Theresa Harris · Answer

It really depends on what you want and how much time you have.  Run the numbers and see how much you'd make and need to spend on the 4plex to update it and same with the SFH.  Buy something solid that needs cosmetic updates. A coat of paint and new floors, if needed, go a long way.  Don't go to town and over improve the property, you need to be able to get your money back.  Again with the numbers look at how much it would rent for without major renos and with and then how much the renos costs-are they worth it?

As for the tenants, if you buy a 4plex unless rents are seriously under market value, keep the current tenants.  As them move out, renovate.  You can do the common area, again if needed, while it is occupied.  I agree with the other person who said vacancies cost a lot as do turnovers.

Stefan Folkert · Answer

In regards to keeping tenants, I've heard many say to have them kicked them out by the seller.

That way a refurb can give an immediate raise in value ( refinance) and the rent can be raised to market value.

I guess it depends on current and ARValue and current vs market rent price.

Opinions?

Aigo Pyles · Answer

I agree with @Andrew Schrader

Jimmy Chao · Answer

@Theresa Reynolds This all depends on your financial position and comfort level but I always advise those who can to go as big as possible. Single family is very difficult and time consuming to scale from a rental standpoint.

Benjamin Aaker · Answer

I totally agree with @Andrew Schrader. Go with the 4 unit. If you are going to live in a unit, you won't have trouble paying the down payment. If not, you might put up to 30% down along with whatever work needs to be done, which looks like you should be able to swing. Getting that multifamily experience early will start you off. This is coming from a multifamily investor who started in the single family realm.

Theresa Reynolds · Answer

Thank you for all the input!! It's helping me tremendously.

I talked to a Real Estate Agent yesterday and he actually said the opposite because of his personal preference of not having to deal with frequent turnovers. He also argued that SFH prices appreciate faster than MFH.

Has anyone ever bought a property with 2 SFH on it?

Start small or go big?

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