Pros and cons on a 50-70 family building.
Don’t have previous experience on real estate but I’m considering from now on.
Things to know before start, etc.
PRO: You could have a lot of cash flow from one investment.
Con: You could easily lose your butt in one investment.
Do you have specifics on a certain building or complex. We need purchase price and gross rents to evaluate the deal.
Good Luck,
Mike
Larger buildings also tend to be owned by a more sophisticated investor and not as easy to find a desperate owner or building with a lot of problems that would allow you to buy cheap enough to cashflow. They exist but are rare. I think to start off since you have no experience you should be looking in the 1-4 unit range and work up from there.
1.What is the:
Location?
Net Operating Income(NOI) & DSCR(Debt Service Coverage Ratio)?
What percentage are Vacant currently?
What is your Experience in Commercial Property Management?
What percent of the purchase price is your Downpayment?/How much “Skin in the Game” will you have?
Will the seller hold a second?
Do you have experienced Partners if you do not have Direct Experience?
Thanks,
Mike Walsh
I see that there is a lot to learn before entering into this.
My interest is still in 50-70 apt. size.
If I go with 2-4 family house think that will spend most of my available funds in this down payment and what is next if I see a good deal on a bigger 50-70 size and can’t take it because of lack of funds that have been spended on 2-4 size.
I’m a newbie investor who is currently looking for his first deal, so my opinion isn’t worth much…
However, as mentioned above I would go with the 2-4plexes. If you choose to get into anything “commercial”, which I believe is 5+…I wouldn’t be looking at a place with 50+ units.
You have mentioned you have much more to learn…so why not read up some more and then finally take the plunge with a 4plex? Better to learn some lessons with that, than to possibly lose your butt with a huge complex(not to say you couldn’t make it work).
Also how deep are your pockets? Have you looked into what it would cost for such a large complex in your area or if you have any way of getting the deal financed? I would think any lender in this area would want someone putting a large chunk down, or someone with a lot of experience.
I'm a newbie investor who is currently looking for his first deal, so my opinion isn't worth much.....You have mentioned you have much more to learn…so why not read up some more and then finally take the plunge with a 4plex? Better to learn some lessons with that, than to possibly lose your butt with a huge complex(not to say you couldn’t make it work).
Sounds like pretty good advice to me!
Mike
Well, I got your point here, need more to learn and a lot more.
My idea is that investing in something huge will result in a big monthly bills (mortgage, repairs, etc.) but it will yield a bigger profits as well.
What can go wrong in a 50-70 apt. building, if there are 2-3 apts. vacant it is still less than 10%, if this is a case in a duplex that is 50% so it will hurt more.
Basically the larger complex it will absorb better any loss.
Would like to hear what can go wrong or where is the hidden problem?
What can go wrong in a 50-70 apt. building, if there are 2-3 apts. vacant it is still less than 10%, if this is a case in a duplex that is 50% so it will hurt more.
That’s funny! What can go wrong? You’d be lucky if you ever only had 3 vacancies! What if the economy turns bad and you had 20 or 30 vacancies? What if the economy worsens and rents go down as taxes are going up? What if a crazy tenant sets the building on fire; someone dies; and you get sued and this is your one and only building? What if drug dealers get into a couple of your units and the police are called so many times that the city condemns your one and only building under a nuisance law? What could go wrong? Nothing!
Mike
To add to what Mike is saying, what happens when lending gets really lax again and 25% of your tenants can now get approved for a mortgage and no longer need to rent? Don’t forget, when credit is tight rentals do well and when it is lax rentals do bad. They work inverse of each other.
Wow!!! That is pretty amazing. Reading this made me laugh pretty hard. You aren’t ready for anything more then 1-4 unit properties (SFH would be best). Tenants will literally slaughter you with that kind of innocence (I promise).
You have two choices. 1.) Grow slowly with 1-4 unit properties. Learn and learn, then in a few YEARS buy apartment buildings and put property managers in place. 2.) Buy a 50-70 apartment now and completely DISTROY yourself and you family. There’s no option 3.
Actually, I think you are overlooking one area that might be good for you. Apartment buildings of 6-18 units. These are often smaller units that normally are not owned by corporate or sophisticated investors, but generally a single person who can often become as much of a “don’t wanter” as any SFR owner. it offers much of the same advantages for cash flow and diversity as a 50-70 unit complex but on a much smaller scale.
Some good bargains in this category.
Sorry Salverston but that is not good advice for an investor with zero experience. In fact that is probably the worst thing roadmax can do. At least with the 50-70 unit property he will have a property manager running the show instead of a rookie investor. 18 units is wayyyyyyyyyy too many units for a guy with zero experience to manage as his first deal. SFH or 1-4 unit properties will give roadmax the best change of being a successful investor.
Here’s one that agrees with you. If you start too small the Banks will consider your income. Hard to get loans. So many people are afraid to think big. When they finally do,they’ve been eaten up by all the small 1 to 4 unit deals. If 2 tenants leave a 1 to 4unit, that’s 50% of your income out the door. How many tenants will have to vacate a 50 to 70 unit to get to 50%? Mortgages are paid doen a lot quicker with a 50 to 70 unit too. Multi units are all about the 4 letter word… MATH. Remember the more money you roll around in,the more sticks to you. (Learn & Earn) Go for it. p.s. everyone on this post that was trying to help thinking negative on this deal,post something positive on how it could work…try it
pplplatinum2,
Lets say you and your wife make $60k a year combined and decide to buy a duplex for $100,000. You realize that you paid $30,000 (30%) too much and now have a $200 negative cash flow. Damn, but you make enough money to aborb $200 a month and will do better the next deal. What if instead of a $100,000 duplex, you buy a 100 unit property and realize you over paid by 30%? This means you maybe over paid by $900,000 or $6,000 a month. Can you absorb a $6,000 a month loss on your salary. NO YOU CAN’T.
How about learning how to manage two tenants. Let’s say you make some mistakes, but again it’s ok because it’s just two units and you will learn. But what if you have 100 tenants and make mistakes on 20 tenants instead of two. How will you survive that? YOU WON’T.
In addition, with no experience and a normal income, no bank on the planet is going to be foolish enough to allow a newbie to start with a 50 to 70 unit building.
Mike
Iron Range If you read my last post after the p.s. you would see that I requested some info on how it could work. Due diligence is how you won’t have to realize you paid 30% too much on a deal. Multi units it’s the NOI that will tell you how much the property is worth based on a cap rate that you can live with. If you have a strong DCR you’ll be fine. Take some time to find a great management company so your inexperience will not be a factor because experienced management will handle the tenants. It’s super super easy to come up with reasons why something won’t work. It takes skill to figure out why something will. I had a friend that said “I could find something wrong with anything.” I said “wow what a gift”. So on the positive: Lets say Roadmax tried the 1 to 4 unit and was able to solve 1 or 2 tenants challenges. Big deal. How is that going to help you deal with 50 people. Once again it’s just 2. If you jump in and deal with 50 people(management team) Guess what you learn with? The 50.
pplplatinum2,
What is your experience? What types and sizes of property do you currently own?
Only 3 Multi units 112,112 and 96. That’s hardly big compared to a Trump or Zel. But you get the point. I’ll ask you the same question. What size properties do you own? And all the experts on why something won’t work own? It would be interesting to know.
I can’t believe this is a serious post.
If you seriously DON’T know the answer to this on your own already, you have a LOT of learning to do that can’t be done overnight, or just by making an investment.
Besides that, you haven’t provided any numbers for purchase, current vacancies, etc.
Tell me your kidding… ??