Found this forum 4 hours ago and have been reading since! Great info from many of you so I hope you can provide a suggestion for my question.
Thinking of starting in REI after doing some research, talking to CPA’s about LLC’s, talking to my bank, couple lawyers and couple managing companies. I think I get the feel and educated myself as much as I can and next step is to jump in to get the real lesson
So I am considering 4-6 unit properties as my first one, since I have a little more to start with ($30k) which will cover a decent down payment. Goal is to get 2nd property in 6 months. The debate I still have if it is worth of paying someone 7-10% of the income for ‘taking the calls’ and collecting rent. But mainly going to the property to find out what is the problem. On one hand I think when you start you should minimize expenses and do as much as possible yourself, but I am also trying to keep my day job for quite a while and dealing with additional tasks from possible 4-6 units seems a little too much to handle.
There are various opinions on how to manage properties. I manage my properties myself. You live in a house or apartment now don’t you? What you do is go home from work help the kids with homework cook dinner and watch tv or surf the net a bit and then go to bed. Wake up the next day and do it over again. This is what you do 360 days a year. There is very little that you need to have done that would take a property manager to do day in and day out. You go months even years before you would need anything looked at. I have houses that I haven’t seen in years. The way I run my properties to do this is when I acquire a house I make it perfect. I make everything in it new. Appliances, carpet, paint all new. New stuff don’t break. If it does there is a warranty so I won’t be fixing it anyway. A property manager takes 6% to cash my rent checks and put deposit them into my bank account for month after month.
On the other hand a multi unit apartment complex requires employees to run. You have a different tenant pool and more issue need to be dealt with. You get things like the kids from 2A are beating up the kids that live is 2B and you need to go over and tell them to knock it off. The lady from 4B locked herself out of the apartment. The washer in the laundry room is stopped up or somebody used die in it. That kind of stuff. But houses and even up to probably 6-plex units just don’t tend to have enough issues to warrant property management in my opinion. Another factor is that I am an engineer and projects just are not that big a deal for me to do. They don’t take a lot of my time.
Very few things constitute an emergency even though some tenants think otherwise. Can you take any phone calls at work or are you married and your spouse could take calls? It’s probably not going to be that bad in the beginning. We started out with a six unit building and never needed other management. We still manage properties ourselves even though we have several more now. My work schedule is flexible and my wife can handle things when I’m at work. We have a handyman who can do anything we need. If you could find someone in the beginning like that it would help. If nothing else, find a good affordable plumber. So many of our calls have always been plumbing related. If you’re going to buy several properties, you can start finding these people for your first property and building those relationships early. Don’t worry if
you don’t find the perfect one the first time. I think most experienced people have hired someone along the way who they wouldn’t hire again. I know we have, but you find good people, treat them well, and stick with them.
Another idea you might consider is keeping one of the tenant’s rent just a little lower than everyone else in exchange for being there to let workers in units and helping you out. We do that with a retired couple in one of our units because that building is out of state from where we live.
Thank you! Both of you! I guess my problem is the initial ‘cold feet’ moment that some people might get. I guess that is why many people don’t invest because all they thing about is the “What if” scenarios. I think the idea of charging someone a little less is great once I get my feet wet and especially if we move and keep the property - which is the plan. I guess the biggest issue will be the ability of people to live next to each other which it is harder to fix vs improve the plumbing system.
So do you guys take someone else to the property beyond the basic inspector to check on pipes, furnace, etc before you purchase the property? Should you invest the time and money before you even get your hands dirty with fixing it if it needs any fixing?
I don’t use home inspectors. If you are unsure about things, then it’s probably money well spent. I’ve gained enough experience at this point where I know what to look for when walking thru properties. If I have any questions on things, I’ll call our repair guy over to back me up. If there’s something that obviously needs replaced (like the roof), you could always get a couple quotes to see how much it would be to fix.
What if scenarios will kill investing dreams. I was just telling someone the other day at work about how much I’ve changed over the past few years. We’ve been left some good messes a few times. The first time I was so pissed and thought it would take forever to get the house back in shape. After a couple clean-outs like that, I learned I can either sit there and look at it & be mad or just get in there and have the crap out at the street in a few hours. Now I just snap some pictures for court and get to working.
You probably can’t get financing for a 6 unit building. If you do it will be several percent higher on the rate. Fannie and Freddie will underwrite 2-4 unit buildings as investment property and give pretty good rates on them. Other than that and you’re talking commercial stuff in house with a local bank.
If you enjoy this stuff and it’s local do it yourself. Otherwise it can and will be a mess.
First off, is this an investment property? Then 30k is needs to be about 25%-28% of the price. With investment property mortgages being around 20-25% down, with all the points.
If However you are being really smart and FHA’ing your first 4plex so that you live in a unit, you’ve got enough.
… My experience with 4plexes, unless you have the $$ already for the second property I wouldn’t plan on cash flowing enough to get to the 2nd property in 6 months.
Here’s why: You’ve got 4x the problems! 4 Refrigerators that can break, 4 HVAC units that can go down, 4-8 bathrooms that can flood. 4 Tenants that can move out an require clean outs… I’ve come to the conclusion that I need to keep a good $8k per roof for each 'plex just in case.
The debate I still have if it is worth of paying someone 7-10% of the income for 'taking the calls' and collecting rent. But mainly going to the property to find out what is the problem. On one hand I think when you start you should minimize expenses and do as much as possible yourself, but I am also trying to keep my day job for quite a while and dealing with additional tasks from possible 4-6 units seems a little too much to handle.
Appreciate any thoughts on this!
It is for me. Please take 10% of rent collection (which by the way is only $200/mo!, for the whole plex!) For me not to have to hear about the running toilet, or the fact that your lightbulb is out, or that the tenant next door is being too loud at 3am in the morning. I am too busy working 80 hrs a week to grow my capital base to deal with that crap.
Ashon - this is why I am going into this at the first place. I will leave $5 to start with for extra costs. Plus I am hoping to get a Line of Credit from the bank just in case. Even if those rates are 8-9% I still it better than giving your cash which you are saving for the next properly. At at least that is how I see it.
But the main reason I want to go with 2 properties is to get the cash flow and after year 1 to get a third. I am not even sure what am I getting involved in with tenants and that is why I want managing company. My realtor is also doing business with managing company. It might seem a nice combination and convenience for me, but on the other side don’t know if that could cause some issues with him just trying to collect money without much work.
I hope you meant $5k and not $5! I was asking more are you taking an investment mortgage to get the property? Because if its your only property best bet is going to be an fha to get into it and rent out the other three units. I recently acquired three 4 plexs. The cost so far has far out stripped the cash flow.
For instance of the 12 units in the last 6 months we’ve had 5 move outs, 2 hvacs go out, one water heater and 2 refrigerators. And we’ve collected a total of 15 rent payments at an average of $525 we are out of pocket. Of course the properties aren’t stabalized yet, and still need work. But we are projecting a 40K cash flow next year which would fund the down payment for 1 more.
I know the cost of the property management is well worth me not having to handle all these calls, making arraingements for move outs, showing the units, dealing with chasing 12 people for rent. I just have 1 person and 1 personality to deal with.
Up front costs are very significant. All my places took a lot of money the first year to maintain or get fixed up to market condition. After that I am able to coast a little bit. Sometimes it’s goofy stuff, like a basement I finished off and forgot to put HVAC registers in (oops). I had to hire someone to come out and cut those in. Another one I bought a duplex and moved in one side and rented the other. The carpet which looked good when we moved in had somehow failed while us and the tenant were there (on both sides). It was berber carpet, and the vacuum just pulled the strands up and the run took off across the room. It appears the backing on the carpet failed, not sure why. I had to do carpet on both sides within a month of each other only a year after purchasing the property. Two years later now and I haven’t as much as changed a light bulb since then on any of those three units.
Carpet and paint are usually built into purchase price for me, as I tend to buy forclosures that seem to always have had pets in them.
A good property manager will be able to save you money by hiring out some jobs and using hourly labor for others… When I first started I wasted a lot of time and money trying to fix problems that could have been done much quicker by hiring a pro. I would say you should defiantly pay the 7-10%
