I looked at my first multifamily unit! HELP

[Deylan Frady]

Good morning all! I looked at a few multifamily houses yesterday ,for the start of my investing journey! I was pretty sad seeing the living conditions of some of these homes.. The term "slum lord" really started coming alive looking at these houses. Does everyone have this experience with multifamily homes? I was thinking to myself if i ever had to come into these units on emergency and fix something.. I couldn't work in that environment for more than 30 minutes. I asked a couple of the current tenants and they pay roughly ~$500.00 a month including utilities.. Do you guys have better experience with a duplex/ apartments vs. multifamily homes?? Thanks in advance!

[Marc Prado]

I hear you loud and clear.  My first multifamily was in the heart of South Central Los Angeles.  A very tough neighborhood.  Think homeless encampment right across the street and several scary characters roaming aimlessly.  

I think your investing journey needs to take into account two important factors, the numbers, and the human factor are a huge part of the consideration.  

By numbers, I mean, does the property pay for itself, can it make money?  Can you budget capital expenditures (big ticket items), utilities, etc.  In these areas I'm betting that you will have a pretty high vacancy rate as your tenants will be constantly coming and going and/or not paying their rent in which case you will have to evict.  Unfortunately this is a fact of life in this business.  

Also keep in mind that there is a reason that properties are given A,B,C, and D ratings.  I've heard that your best bet is to focus on B rated properties if you can afford them.  If these lower level properties are all that you can afford then you really want to make sure you are ready for the task at hand.  I would recommend speaking to property managers and asking them about their experiences in the area.  Determine if you are going to self-manage or get someone else to do it for you.  I started off having a property manager with the understanding that I was learning from him and would take over after a year.  I'm still managing the property but it has had its challenges.  I've also learned a lot in the process.  

I also mentioned the human factor.  Remember that these people are going to look to you for help when something goes wrong and you will need to be the person to fix the leaky toilet and hot water heater for them (or have them fixed by a pro).  These are basic needs and are your responsibility.  Hopefully your property will make enough for you to be able to fix these costly items.  Keep your Capital Expenditures well budgeted in these types of homes as most of the sellers of these apartments often put off big fixes before selling.  

With that said, I hope I didn't scare you but these are realities of these situations.  The numbers are very important in these situations and reserves will definitely be needed to fix the years of neglect. At the same time, you may just be the savior who helps these people from a previous landlord who neglected them.  Good luck.