New Investor Considering Multifamly

[Brandon Koser]

Hi everyone. New to investing here. Have 2x SFR in Indianapolis grossing about $1k/month after PITI and management. I've been looking to expand and trying to find new deals. I'm out of state looking for cash flow buy and hold rentals.

My agent just brought a small multi (2-4 units) and small complex (5-15 units) to my attention. I could buy either or both. I hadn’t planned on doing multifamily so early but the napkin math quickly caught my attention. Before I jumped on this though I was hoping to get some advice.

My understanding is all or 95% of the units are currently rented. They are small (most 1 bed, a couple 2 and studios) with low rent per unit. Tenants have been long term (shortest over 1 year). Annual GRM for small is 4.48 and the complex is 2.46. Just based on these I knew I wanted to at least look seriously.

I have a number of concerns though.

1. It’s not Indianapolis. I’m not familiar with the market but a quick google search shows it seems to be a declining, small rural town with no major industry or job producer. I’m VERY worried that if/when a vacancy arises, who knows how long it would take to get a tenant.
2. The seller has been managing himself and has been paying utilities on one unit of the small and ALL utilities at the complex. I’m not super comfortable with tenants having no skin in the game to conserve. It’s an older building. I don’t know if individual metering is even possible, and even if it was, how would I do that, would it cost an arm and a leg, and would it alienate the tenants whom I don’t want to leave due to concern #1??
3. The reported operating costs are pretty high. I’m awaiting details but it’s currently listed at 55% of rental income. I assume higher. I would have to add management even if I somehow addressed the utilities issue. The multi comes with a small parking lot across the street. Like I said I wasn’t planning on multifamily yet. What do I need to worry about liability? I’m assuming I can’t get regular insurance? Where do I start looking? I’m not sure about delayed maintenance/ capital expenditures that will be needed.
4. Financing is a bit new as well. I’m ready for a conventional purchase or refinance on a small enough purchase but can’t quite afford the complex. Where do I even begin to look for a loan for the complex because I can’t do a normal mortgage with this?

I’m sure there are other factors I haven’t even thought of yet.

Any and all advice is very much appreciated.