Hi thanks for the reply. Its not the money to start its the money to keep going if your goal is rental properties and a passive monthly income. If you intend to buy 30 properties. Thats a lot of down payments and closing costs. As was preeeviously stated te best way is to buy them right fix , rent and then refi.
If you want to keep going, why not use IRA’s It’s money. Tap into these accounts and use them as money for your investing. Money is money. The only thing that is different is where it comes from.
The largest source of money in the world is real estate. The second largest is retirement accounts. There is over $3 trillion in IRA’s and as soon as the Baby Boomers retire there will be $13 trillion. To me, that is a lot of money to access for real estate investing…to keep going!!!
Tony
Hello again to all in this thread…
again great info dw, stoop et al. what states are you all looking for properties? DW I look forward to seeing your blog.
Mark in san diego
I live in south NJ. I am not ready to buy yet but I still look for deals as practice. I found a triplex that grosses $2300 a month. They are asking 180k. I would offer 60-70% if I see this proprerty sit for a while as multi-families have been. If I could keep the total monthly debt under $1300 I would make an offer. Of course alot more thought and research would into it.
Well…I’m not experienced…so that’s something to consider.
But here’s how I see it…in addition to what’s been said so far.
BTW…I agree with propertymanager’s main point of buying at a steep discount. That, (coupled with a lender that loans based on LTV), gives you a good running start.
Now…back to your title line…How do you get to 20-30 properties?
Let’s round that number up to 32, (I like multiples of 4).
Instead of properties…let’s think of units…each unit being a person that is indebted to you for their monthly rent.
32 / SFH = 32 SFH you have to make happen.
32 / Four-Plex = 8 Properties
Are SFH at steep discount more easy to find because they’re that much more of a commodity item? Probably.
Do you get less rent from a unit in a fourplex because it shares common walls and has less square footage? Probably. I consider that a good thing. A $550 renter in a 4-plex might hang around a lot longer than a $950 renter in a SFH. The smaller the nut…the more they, (the tenant), can stomach it.
I could go on an on…small multi fam vs SFH has been a constant debate for me.
I don’t like the idea of a SFH sitting vacant for 2 months.
Having only 3 of 4 units rented out in a 4-plex isn’t such a bad thing. You can move your toolbag in there…do a little forced appreciation and then jack up the rents a little for the next tenant.
Is it a perfect world…are you going to find 8 four-plexes…all at a steep discount. Probably not. But maybe mixing it up, (SFH with an eye on Small Multi), is the way to go.
Just some add’l food for thought.
-Mike
That sounds not too bad except in my experience and others I have talked to singles dont give you as much bang for your buck BUT they tend to rent faster and hold tenants for longer.
After I get enough cash flowing multi-families. I am going to buy, rehab, rent, and refi singles.
I like Mike (gash’s) thinking. Good advice.
I agree with Mike that buying multis is a faster way to build your real estate portfolio. There are also some efficiencies with having more units under one roof. However, the tenants are MUCH worse in most multi-unit rentals and it can be a disaster for a new landlord. There is also generally a higher vacancy rate, more turnover, more problems with drug dealers, and more damage done by the tenants. Almost all of the tenant issues are harder with multis.
There is a definite pecking order in life. Rich people live in mansions, the middle class own homes. The lower middle class live in rental houses. The lower class (which includes almost all the chronic criminals) live in apartments. Of course, young people just starting out also live in apartments, but these apartments are generally nicer than the low income rentals of the lower class.
I have both SFHs and multis. I strongly suggest that new landlords start with SFHs. This will give you some time to learn the business and to learn to be a good landlord, before jumping into the fire with multis.
Mike
Mike, thanks. I appreciate your thoughts and help. What are your thoughts of single condo units located in nicer areas. I will close on my second investment condo at the end of this month. I know some people say there are some drawbacks to investing in condos. Just wondering what your thoughts are. Thanks!
al
Al,
I have absolutely no experience with condos. The obvious consideration with condos is the HOA fees and the way they are structured (and who sets them). Besides that, the key to success with all rentals is CASH FLOW! If you’ve got a significant positive cash flow using the real world expense numbers, then you’re doing fine.
Mike
Mike,
I make about 32k a year and will not be able to pay the mortgage on a SFH if it is empty. That is why I am going with MF first. Is there a strategy for starting off with SFH’s?
Al,
Make sure the condo’s covenants and regualtions (C&R) allow for them to be used as rentals and insure that there is no cap on the number or percentage that can be…it is not uncommon to have a condo rule about no rentals or only 40% rentals (example)…
Keith
stoopitnewb, You get out of the danger zone on SFH by getting more than one. The others help with the note when one goes empty. It depends on where you live but here houses rent in 2 weeks. If you get on it as soon as you know it is empty the make ready takes 2 weeks max and it takes 2 weeks to rent so you are not using your own money to pay mortgages.
Do you still follow the P&I< 1/2 months gross rent?
That is propertymanager’s formula. I would love to find that. I have not found that I can do that, and I may be decieving myself but I have been able to hold off the expenses by making the properties prime before letting them out and screening tenants hard. Maybe I am just lucky, or it may be where I am and my market but that 1/2 gross rent is a great target.
Stoopitnewb,
I think that you have the wrong impression of multis vs SFHs. These are really two different animals. Let’s take a 4 unit building for example. We know that about 1/2 of the gross rents go to operating expenses and the other half pays the rent and provides whatever profit you have. If you have a four unit building and 2 units go vacant, you only have 1/2 of the gross rent. The expenses still have to be paid. You have nothing left for the mortgage. This is not much different than having four houses and two going vacant. The result is the same, you can’t pay the expenses and the mortgages.
In an earlier post, you said that you would have $8K cash and $3K credit to start. If you can hold onto that to use as a reserve, you’ve got a good start.
Regardless of the type of rentals you have (SFH or multis), you are at the greatest risk when you have a small number of rentals. Once your portfolio grows, you can absorb a lot more adversity IF YOU HAVE THE PROPER CASH FLOW.
Bluemoon,
I don’t think that your expense numbers are low because you are lucky. It may be that you only have a small number of rentals and haven’t absorbed any large shocks yet. I went about a year and a half before I had my first vacancy! I thought I had struck it RICH! But then as my porfolio grew, all of the expenses that I had ignored started occurring.
For example, let’s say that a tenant on average only does significant damage (more than $2,000) to a rental every 10 rental years. A rental-year is the number of rentals multiplied by the number of years it is rented. A person with only one rental might expect to have a bad experience only once in ten years, but that once occurs at random during that period. Let’s assume that the profit from this rental were $100 per month. Now let’s say that this landlord goes 4 years before a tenant does any damage to his rental. At the four year point, a tenant gets gets mad at the landlord when he is evicted and does $3,000 worth of damage. In addition to the damage - the loss of two month of rent, the eviction fees, court costs, and legal fees adds another $1,500 to the tally.
Over the 4 years, the landlord had made a profit of $4,800 ($100 per month X 48 months) before this incident. The loss from this single incident is $4,500. The landlord’s real profit is only $300 in four years! The landlord was easily able to go through the first 47 months thinking that this expense would never happen to him - but it finally did.
It may also be that you are doing the management and maintenance yourself. The formula of expenses being 1/2 gross rents assumes that everything is being hired out including management and maintenance. You can lower your expenses by about 15% by doing the management and maintenance yourself.
Good Luck,
Mike
How do you find SFH’s that cashflow? To do it around here, you have to go to the worst areas of the city to find a property under $100,000. Townhouses can get close at $150,000 to cashflow but you have to wonder whether the rent flies at that point.
If you can’t find properties that will cash flow in your area, then either don’t do rentals or move to a better area. Contrary to the guru nonsense, everything does not work in every area all the time.
Good Luck,
Mike
Really, Mike…?? Say it ain’t so!
Keith