Newbie (kinda) from Louisville, KY

[Paul Savage]

So I'm not technically a newbie to Bigger Pockets (been following BP for about 6 months now), but I never did an introduction when I first joined and Bigger Pockets really helped me close on my first rental property about a month ago so I figured I'd go ahead and introduce myself. 

My name is Paul Savage and I am a 24 year old Real Estate Investor from Louisville, KY.  I've always had an interest in real estate from a young age because I've always dreaded the thought of a 9am-5pm desk job and I had always noticed the amount of wealth that property owners have.  Once I graduated from the University of Kentucky in 2017, I got one of those dreaded W2 jobs but instead of being 9am-5pm it was more like 6:30am - 6:30pm.  While I actually enjoy the job (yes, I'm still working there) and there are tremendous advancement opportunities, the thought of working 60+ hour weeks until I'm old enough to retire from my 401k terrified me and motivated me to do something about it.

In about August of 2018 I started learning everything I could about REI and immersed my self in self education from reading 15-20 books a month to listening to almost all of the BP podcasts. Finally, I decided that there was only so much reading I could do and that I'd actually have to pull the trigger at some point to get some real hands-on education.

About a month ago, I closed on my first 4-plex, and while there were a crazy amount of hurdles along the way it finally closed and is cash flowing about $250/door from the get go because I inherited 4 quality, long-term tenants. Hopefully this is the first of many.  Thanks BP

[Greg Bishop]

Hi Paul,

Congratulations on your first purchase! I started investing in real estate in the Seattle area near where I live in 2003 starting with single family rentals. I decided to purchase my first 4-plex in 2006, which I just sold last year. The one piece of advice I would give as a new investor is to treat the 4-plex like any other apartment complex. From a property management perspective, the renters, management and maintenance will demand your time, scrutiny and attention beyond the levels of a single family home. 

I first purchased the 4-plex to diversify and increase the number of doors. I owned two single family rentals already and wanted to "step up my game" so to speak. I figured that having a 4-plex would be a good way to diversify; even if all units weren't rented, there'd be income to pay the property costs instead of an all or nothing scenario in a single family home, for example. I hoped it would springboard me into a cash flow that would allow me to increase my portfolio. It did not, for several reasons, but that's not the point I'm trying to make. I just wish I would have known some things that new investors don't know and is hard to find in forums and podcasts where everyone is excited by the deal and how many properties they've acquired.

Here are my lessons learned:

• One hard lesson that I learned along the way were that you will get the same caliber tenant in a 4-plex as you will with any apartment complex. Apartment renters are just not the same as house renters. They care even less about your property and will do the craziest things. House renters generally have been easier to manage for me. House renters seem to have a "pride of ownership" mentality that apartment renters do not, even though they are renting the house and do not own it.
• Another lesson I learned is that the 4-plex I purchased was not big enough to warrant hiring property management, but it was too much maintenance for me to self-manage. I managed the property myself for years and then finally hired a property manager due to the ongoing time needed to manage the property. Rental turns, property maintenance, rent payment management, renter issues management, etc. all were too much for me to manage on my own.
• From a maintenance perspective, in a single family home, the tenant can be responsible for the yard upkeep, weekly garbage pickup, etc. In the 4-plex, there was no one to police the tenants who would just over-fill the garbage bin, drop garbage all over the parking lot, yard, etc. No one was responsible for yard maintenance, damage to the front doors/windows to the building, cleaning the stairwell, fixing holes in the walls in the common areas, etc. I had to visit the property regularly to clean it up and monitor lights working on the exterior, repair damage, put garbage cans away (after I opted to remove the central garbage bin after years of picking up trash from overflow). The landscapers I had to hire didn't do upkeep like that. They just mowed and trimmed vegetation.
• Tenant management was a bigger issue, too. In the 4-plex, it was one person's word against another when issues arose, making it very difficult to resolve issues. You have to deal with the same "renter drama" in a 4-plex as any other multi-family building when neighbors do not get along. I can't tell you how many fights, arguments and violations of conduct I had to manage and ultimately cite everyone involved so that I had options for eviction down the road if needed.
• Anything 4 doors and smaller is considered residential property from a lender perspective, which gets you in at good rates, but does not valuate the property as a commercial property. As such, your property appraisal values are influenced more by single family properties and investors in that market, since they are more likely to house-hack, etc. Which means you deal with emotional buyers and the appreciation on such a property isn't determined by the financial performance of the property. This can be good or bad when selling.

These are some of the major lessons I learned along the way. It's not that multi-family investing isn't a good strategy. I plan to keep investing. I just wish that I had known these things before I jumped into that market.

Here's how I plan to proceed going foward:

1. If I purchase multi-family, the cash flow needs to cover the higher costs of maintenance and should cover property management.
2. Find a way to split the management costs, if possible, with neighboring property owners.
3. Buy in a better area and do the research because the area where I purchased was on the rise with incentives by the city to develop, but then the market turned and development stopped. The caliber of tenants never improved.
4. Plan to purchase multiple multi-family properties in the same area in order to make hiring property management more economical. Don't just buy one 4-plex. OR, go big or go home and buy a complex with as many doors as you can afford; because ultimately, multi-family properties all require the same amount of attention and the more doors you have the more it justifies and pays for professional property management.

I hope this helps prepare you for your journey. Feel free to reach out if you need to pick someone's brain. I'm no expert. I just know the lessons I learned in my own journey.

Best wishes.

Greg