Newbie Investor Looking @ Multi Families in Meriden - Any advice?

Question

Hello Everybody,

My name is Chris and I'm a newbie to real estate investing. I am looking at buying a small (2-3 unit) Multi Family home in Meriden for a Buy & Hold (rental cash flow). I see a lot of properties in the 100k-150k range that look as though they will cash flow well. What scares me is that there seems to be a lot on the market and that the area isn't the greatest. Are there any other investors in here that have worked in Meriden before and could offer some tips or advice? I am also keeping an eye out for deals in other towns such as Wallingford, West Haven, Hamden etc.. but they seem to be a bit harder to find in my price range. I'm looking for any advice you may be willing to share, I am excited to get to know you guys and possibly working with you in the future!

Thanks,

Chris

Cameron Norfleet · Answer

Yes I've done business in Hamden. As for finding quality tenants there, it's just as easy/hard to find quality tenants there as it is anywhere else. I have a MFH in the Lower Dixwell Ave area. I'm assuming that's what you're referring to as the rougher part. I've had a great experience with the tenants. It all boils down to the screening. Wherever you are.

As for the Refi, it would definitely easier if you could force added value into the property. If you can't, then you'll have to either shop around to different banks, or just wait to build up equity.

Chris Ravettine · Answer

@Kerry Mertz I agree, a lot of the multi families in Meriden in my price range seem to be more of a headache then they're worth. I am currently "house hacking" my condo as I have a roommate that covers most of my monthly costs. I am looking to build up a passive income primarily through buy and hold or BRRRR. Originally I was looking to go in by myself with a property sub 200K that I would most likely do a combination of live-in-flip and BRRRR, i.e. finance with FHA or a conventional owner occupy then do some upgrades and bring the property into a updated space that could be rented for a positive cash flow. After this was established I would hope to cash out refinance to be able to go and do it again. Although this all sounds great it seems difficult to find these type of deals on the MLS (although I still find it hard to analyze these deals). That's why this recent deal has caught my eye. It is a MFH that is cash flowing well and in pretty decent shape for the area. The downsides are that it is probably at the top of the market so their would be no way to force equity through upgrading the units, it is in a rougher part of Hamden, and a few of the units are on the larger side so I'm concerned with how difficult it would be to find reliable tenants for these larger units.

I have been looking around and keeping an eye on the market for a few months now so I don't feel as though I am rushing into this but of course since this is my first real investment I am hesitant. There is still a lot for me to learn and it is quite intimidating.

@Cameron Norfleet Are you experienced with the market in Hamden? Do you know if it would be difficult to fill 4-5 bedroom units with quality tenants that will pay on time in a reliable manner? Also could you explain how the refi would be able to pull out some of the original capital if there is no increase in the value of the property?

Kerry Mertz · Answer

I've seen most of the multifamily inventory in Meriden lately because I have an investor client looking there as well. My experience has been that anything in the $100-150k range is either in a less desirable area or has a lot of deferred maintenance. Most multifamilies in Meriden are about 100 years old, which isn't necessarily a bad thing if they are well taken care of, but many are not.

My suggestion would be to nail down your strategy first- buy and hold, BRRRR, house hack, ect and make sure your partner is on board with your strategy and goals as well. If you have a large amount of capital to invest, it may be worth it to increase your budget to include properties that may be in better shape or better location.

Either way, don't rush into something just because you're eager to get started. Get the fundamentals in place first then move forward with a purchase when you are sure that it fits your strategy and goal, even if you have to wait a while.

Cameron Norfleet · Answer

I couldn't tell you what the "better" option would be because I don't know you and your family member's situation (goals & other financial obligations). But yes, putting a large amount into one deal will make it temporarily harder to invest in other deals. Consequently, you may not make as much money as you would have if you made a smaller downpayment. But again, that's not the only factor to consider.

As for getting your capital back out. Yes, start shoping around with different banks to refinance within the next year or so. You won't get back the full 21.5% (difference between FHA downpayment of 3.5% and the conventional 25%) but you should be able to pull some of the money out.

I'd also advise you to take your time. Be patient. If you're new to this business, it might not be a good idea to take on multiple properties at once. Get one, get your property managment systems down packed, and then build your portfolio from there.

Chris Ravettine · Answer

@Cameron Norfleet

Great advice. I am currently working on putting in an offer on a property. The cashflow is pretty high as it is a MFH. Current cap rate at the offered price is 12% with the possibility of getting it up around 13-14% by raising rents slightly (only about $100-$200) to market value. My only hesitation is the large amount of upfront capital. I was looking into the potential of going FHA but my realtor is suggesting to go conventional if I really want to be sure I am to get the property. This means putting down 25% which would bring my down payment north of $100k . Although I believe my COC ROI would be something like 20-23% it seems like a hefty amount of money to be out of pocket. This money would come from a family member that is willing to go into the deal with me, they are based out of state so I am the one that found the deal and ultimately would be responsible for managing the property and securing financing. In your opinion is it better to have more equity in an investment or am I potentially missing out on other deals by putting all the available capital into this one deal? Would there be any way to get that capital back out without waiting on the cashflow to recoup it in about 5 years? The cashflow should be around $2k per month after mortgage (PITI), Utilities for the common areas, lawn/snow care, 5% vacancy, $100 for repairs, and $200 for capex. (Most of the big ticket items are in good shape with the exception of the heating systems which are dated but still operational.)

Cameron Norfleet · Answer

Hi @Chris Ravettine

I'm assuming that your hesitation with owning a property with an oil tank is the possibility that the tenants may let it run dry and cause damage to the furnace. In full disclosure, all of the properties that I own and/or manage have gas with the exception of 1 unit. And that unit is occupied by a responsible family member of mine. So I don't have personal experience with that issue. However, I certainly wouldn't let that be a large factor in my decision as to whether or not I'm going to purchase a particular property or not. At most, I would allocate a little more money into my annual maintenance budget in which would slightly lower my offer price.

As for finding cash flowing property in Meriden, Wallingford, West Haven & Hamden. Understand that you set the amount that you're going to cashflow with your purchase price and how well you manage the property.

I often advise my clients to totally ignore the listing price. Your offer should be based on the amount that you want to derive from the property after calculating it's income & expenses. So get an ROI in mind, let say you want a 8% cap on any property you purchase. Now you have a starting point. So then the next property that you analyze, figure out what your offer price should be to get that 8 cap. If they accept, then they great, if not... Move on to the next.

Chris Ravettine · Answer

Warren,

I looked at a few properties this weekend. Nothing to get too excited about. One 2-family that had me excited was way worse off in person than the pictures made it seem. Another concern I have is buying a house that still has oil heat and an oil tank in the basement or yard. Do you have any experience with this? Is it something that I should stay away from? My realtor doesn't like oil heat and has advised me to stay away but of course I would like to hear others opinions.

I viewed a nice sized SFH that needed a good amount of work, mostly interior cosmetic work, but it had a old oil tank buried in the side yard. Otherwise, the bones seemed good, the house had a great layout, and the seller was motivated. I'm tempted to see what their bottom dollar would be but I don't want my first deal to go downhill because of the oil tank.

Warren Garceau · Answer

Hi @Chris Ravettine I think you are on the right track. This is a similar way I started out. I too self manage my portfolio and am currently working to buy more properties. If you are looking for deals in that 100-150 range then Meriden could be a great option for you however like i mentioned before this is not an area I have a killer understanding of. I think the higher returns are your payoff for dealing with "potentially" more problems. As for looking at older homes.  You just need to do your due diligence and inspections to make sure the bones are good. If they are not then you may want to adjust your offer appropriately or walk. I find my $600 inspection to be a cheap "insurance policy" before I commit to buying.

Good luck with the search!

Warren

Chris Ravettine · Answer

Hi Warren,

Currently im living in West Haven but working in Wallingford. I believe I would like a property as a pure investment, not a house hack. My current place is paid off so I just have my monthly carrying costs. Granted I would like to move a bit closer to work but at this point I would like to get a better understanding of Investing and generating a cash flow from my Investments. For the time being I would like to manage the properties myself until my portfolio begins to grow.

I have heard the same about Meriden, there are good parts and bad parts. It just blows my mind that there seems to be turn key multi families in the heart of downtown that will cash flow a few hundred a month. Of course this isnt the best part of meriden but i think $800-$1000 is a reasonable monthly rate for a 2 Bed 1 Bath unit in this part of town. Correct me if I am wrong. One thing that worries me is the age of a lot of the homes. Most being built in the early 1900's. Should i stay away from older properties even if they seem to be in turn key condition?

-Chris

Warren Garceau · Answer

Hey Chris, great to meet you and good luck with your search! We own properties in a few of the towns you are looking in but not Meriden. We are constantly finding deals in that town that seem to cash flow. I do know that there are ok areas and not so good areas of that town. It can change like that from one street to the next. I personally have been advised to use caution in that town. But that isn’t to say it’s a bad place to buy. Are you close to Meriden? Will you be self managing or hiring management? Is this a pure investment or will you be house hacking? Happy to connect and help you out if I can with any question.