Is a 4-plex too much for a first deal?

Question

Hey BiggerPockets! So, my wife and I are looking to do our first deal. We are in the Metairie, La (New Orleans) area and it seems like everyone else is also in the market for multifamily properties. We've been looking for potentially a duplex, but just aren't seeing any of the numbers work. We're considering looking into a 4-plex. In our area we would be looking at something around 425k-475k. We would do an owner occupancy. Hopefully find one with 3bdrm 2bath/unit for around 1k/month. We would plan to update each unit one at a time and increase rents. My question is....Is it wise for us to be considering a 4plex for our first deal? Any recommendations in regards to first time landlording a 4-plex property while moving our young family into one of the units as well?

Tami DuBose · Answer

@Michael Breedlove, any book you can imagine is in the notes from the podcasts. You have a wealth of knowledge in your local REIA and here on BP.I'm excited for you guys and have a few thoughts. - Louisiana is a SUPER FRIENDLY to landlords state. Be thankful.- You noted receiving prorated rents. You should also receive the deposits.- Our first rental was a 4-plex. Easy, peezy. I honored the rents of the original landlord who did NOT have any written leases. I made appointments with each tenant (same evening) to "introduce myself & confirm any understandings from the previous landlord." I told them I'd need to confirm all residents with a picture ID & meet them.- When I arrived, I had a lease. Started with small talk, exploring their previous landlord relationship, asked about needed repairs, and any insight they could share. I let them know I planned to do deferred maintenance & spruce things up. I wanted them to be able to lock in their rent at 6 or 12 months because "rents may be adjusted to account for increased taxes/insurance/maintenance."- I also brought my rental worksheet (application) to be completed by me while I was there. It's a good way know them better. Plus, you need that stuff when an issue arises; eviction.Feel free to call me if you'd like the worksheet or have any questions. I wish you amazing success on your new journey.Tami 225.773.711one

Matt Dunn · Answer

Michael, I'll agree with the rest, I think a fourplex is a great way to start. You get the good mortgage rates, and get into landlording at the same time. Having 3 units rented should be able to cover your mortgage and expenses and maybe even cash flow. Just make sure to set some money aside for expenses, including vacancies and capital expenditures. Here's a good resource that you might take a look at if you haven't already on becoming a landlord: https://www.biggerpockets.com/renewsblog/2013/01/04/how-to-rent-your-house/

Jeff B. · Answer

Kind of a sweet spot; lending is still conventional and not a big load to manage the other three doors, seeing you're going OO.

Matt M. · Answer

Hi Micheal, Your correct that most duplexes in New Orleans and the surrounding area will not cash flow at this time. The 4plexes in Metarie are very expensive right now, but will cash flow even when you don't include your unit. It's not too much for a new investor to handle, and Louisiana is very landlord friendly. The hardest thing for you will be having the old tenants leave, or increasing rent to market. I'm in New Orleans if you want to meet up, or have any questions PM me.

Michael Breedlove · Answer

Greg Jeanfreau thanks for the advice! My wife and I are officially under contract on a 4-plex. All four units are currently rented at $1,000/month. Each unit is 3bedroom/2bath and 1,200 square feet. I'll be receiving the current leases soon so that we can review them. I have to do some research on how that process of signing a new lease works whenever there is a new owner. I'm pretty sure we have to honor the current leases. What I'm not sure about is if we can extend the new leases immediately (if tenants are good and if they are willing to) or if we have to wait until the current lease period expires and then potentially extend them for another year. We have been told that two of the units are on month to month leases and the other 2 are on 1 year long leases. We will be moving into one of the units, but I'll probably do a few cosmetic updates to that one unit first. The building itself is only about 12 years old, so it's in great condition. I also have begun to read up on current Louisiana laws regarding Landlording. We are looking to close at the beginning of May which will be good because we will receive the prorated rents for that month. Our plan is to live in the one unit for a year, potentially refinance, and then pull out some of the equity so we can possibly do it again. Any of you have personal recommendations when it comes to Landlording books? I know BP has a list of books they recommend covering a wide variety of real estate topics (I've read several of them and they've been very helpful). Pros and Cons of having year long leases as opposed to having month to month leases? Obviously, locking someone in for a year can be a little bit of a relief financially for a period, but I've heard it is difficult to remove bad tenants on long term leases and can end up costing more money.

Greg Jeanfreau · Answer

I think that is a great way to start. This will be much easier to manage than say 2 duplexes or 4 single family homes, but not so large that your financing will have to be commercial. It will also limit your exposure from vacancies. If you do end up getting it, please make sure to have the best leases possible and screen the heck out of your tenants. Don't let the need or want for occupied units affect your judgement. I would recommend renting them out slightly below market in order to create a high enough demand that you can be picky with your potential renters. Best of luck with it!

Michael Breedlove · Answer

Thanks for the tips everyone. We were able to We've put an offer in on a 4plex and are waiting to hear back. Matt M. Nice to meet you man. I'll definitely try to get in touch with you soon.

DJ Cummins · Answer

Hi @Michael BreedloveWe started with a 4 unit, and it isnt to much to handle. It has been really good to us. I would say go for it if you find the right place. It will definitley help with vacancy costs. If you have 1 sfr and it is vacant, there isnt any income. if you have a 4-plex, 1 vacancy doesnt hurt nearly as bad. Good luck!

Account Closed · Answer

As long as it is safe for your family, heck yeah get a 4 flex. Starting with 4 doors, is a big deal. Took me a while to get to that in SFH. It really is no different, you just have easy access to all your units.