small multifamily rehabs

[Anthony Larson]

I was wondering if we could start a topic about rehabbing small multifamily building 2-10 units.

maybe starting with what to look for and good ways to get started.

[Michael Underwood]

If you ask the question the topic will automatically start.

[Anthony Larson]

True LOL

allrght has anyone bought undervalued multifamilies fixed them up stabilized rent and than sold them and continued to do this instead of single family properties.

[Vikram C.]

I have thought about this on a couple of occasions but the long holding period compared to SFH flips + my lack of expertise in managing rentals has put me off. Interesting idea, though, especially if you can use leverage to reduce the equity in the deal.

[Anthony Larson]

I would like to start small and in my 30's start getting into 20 plus unit buildings.
:)

[Marc Freislinger]

While I was looking into doing this, I came up against two problems.

1) Time to sell. As it's already been mentioned, it takes longer to sell multifamily even when priced right. Though, good cashflow can offset this.

2) Value. A lot of sellers I spoke with had no real idea of what their place was worth. They try to value them off SFH comps, or what they paid, or they just pick a number. In order to buy profitably, you need to be able to show owners what the value of their place really is. When you're trying to sell using the 50% rule, that means your purchase prices are way low and a lot of owners think you're trying to rip them off. In reality, they just paid too much.

[Anthony Larson]

I hear what you saying and I been reading online alot about this.

It seems SFH's are doable and bigger value add apartment complexes, but that takes corporations or a very strong investment support team

[Brad Z.]

I have renovated a multi and sold it as a stable performing asset. I will say, one challenge is the tenants and them knowing there building is for sale. Its tough to manage them when other investors are coming through on a regular basis. I did a temporary rent reduction of 100 per month while it was on the market and that worked well but the tenants were anxious, just something to think about. I did do well on the flip though.

[John Chan]

Brad,
What part of town was your multi-flip?

I've flipped multi's before in Cincinnati and sold them to a FHA owner-occ. The tenants were more than co-operative since it states in my lease that as long as I give them 24 hours notice it's okay. I did have to reassure them that they will not have to move, their lease will be honored.

[Laura Alamery]

I have been buying and rehabbing multi families (up to 4 units) for almost 20 years in St Louis and it has been a very lucrative practice. If you buy them with the intention of reselling them quickly, you just have to buy them very low, fix them up, get them rented (if you want to sell at retail) or wholesale them vacant (and also not fixed, depending on what type of wholesalers you are working with). Just rinse and repeat.
During booming years, together with my partners, we bought and sold over 60 properties in one year (great year 2002!) Nowadays it is more like around 15 or so a year, because we have to pick the ones really low and in stable areas in order to flip them quickly.
Do your homework and it will pay back fast.

[Anthony Larson]

Thank all of you for the input. lowering the rent was pretty helpful as well as having the 24 clause in the contract. Laura thank you as well for your input I just think I would be a lot better as selling investments that SFH's and would like to add you to get occasional help or ask questions when and if I have any.

I was going to start real estate investment this year but decided to grow my capital a little by volunteering to be deployed for the second year in a row. ( the first was iraq).

I'll be using my VA loan to buy a 4 unit and plan on refinancing and moving into another four my entire life as often as I can.(under the rules of the VA loan) or atleast until I get sick of it (living with tenants)

[Account Closed]

i have bought, rehabbed, and sold a 4 unit property...also bought and rehabbed several duplexes and a 10 unit property--those i decided to keep because the cashflow was so great for now....biggest thing when selling multifamily is that it helpsif you can offer owner financing...investment loans really limit your pool of buyers, so if you can offer the terms, and then know a note buyer to cash out, you can still do very well by being a bit creative. also, tenants will slow down and delay your rehabs. it's much more hands on than just having a GC go out to a single family flip, but the profit is there, and you have the additional option of holding for cash flow if you bought right.

[Yan P.]

When buying a 4, 3, or 2 unit. Do you normally leave one unit unoccupied for an FHA owner occupier? I do not see a person buying a 4 unit just for investment b/c of lacking economies of scale unless they own a bunch in the area. In your experiences, how often is it an owner occupied compared to investment property purchase?

Bryan, I imagine a 10 unit property owner-financing is not too conforming. May I ask what the structure of your last loan was and what kind of discount you had to take when you sold it?

[Account Closed]

yan, that's an interesting thought to leave one unit vacant for an FHA borrower. I haven't considered that yet, but I may in the future. My goal is to make the place look like it cash flows as best as possible, so that's why I get all the units filled up. You would be surpised about the amount of "investors" who want to get into the game, but can't get a loan because of self employment, but still have plenty of cash on hand and great credit. Or, they have a great job, great credit, and only 10% downpayment. By offereing owner financing, you open yourself up to a lot more people who want to get into the game. Not only are you making money, but you're helping them. My last note I structured was 10% down, 8.5% interest amortized over 30 years with a 5 year balloon. When I sold the note, I kept the downpayment, and the first few payments they made while talking with a few note buyers. The deal I made was about 80% of the unpaid balance. My goal was to cash out, but I didn't mind receivign the payments either, as it was totally offhands. They took care of tenants and all expenses, so I consider it a win/win. I should add that thsi was my first note I sold. BP members helped out a ton, and although it turned out successful, in the future, I would change a few items. I would probably charge a slightly higher interest rate. I would also create at 80% note, and then a 10% note with an even higher interset rate that i would keep for myself. I wuold sell the larger note only.