Multi Fam. for a first investment property?

[melissas]

My husband and I have been a REIN Member for 5 months now, and have been "getting all of our ducks in order" so to speak and, are now ready to buy our first investment property. We are very committed to our vision of what we want real estate to "do" for us and are looking to find a mentor. We are very inspired by what we learn at REIN and would like to know if anyone would consider being our mentor. We have been informed by our mortgage broker that we are in a good position for the purpose of investing as far as available funds are concerned. We have been viewing many single family homes and have started to wonder if it might just be easier to buy an apartment building right off the start? We intend to use our home equity line of credit to support our down payment and have found some homes and apartment buildings that cash flow fairly well. Can someone please guide us as to where we should start? Thanks for any suggestions!

 

[NorthernAlex]

Hi Melissa.
My wife and I bought a 5plex as our first self managed investment (last month). There are sooo many things to learn, but I really enjoy the "learning by doing"-aspect and don`t want to miss this.

My wife said as a joke that I am strange, because I like this new journey and all their possible risks but I also see there huge potential. Of course I am scared, but I think I am in excellent company here. Not only by buying and holding real estate, but also in meeting interesting people and getting from there maybe an opportunity and more knowledge.

Do your due diligence learned here, ask questions and think about the "what is behind the curtain!". Thats my credo.

 

[Thomas Beyer]

QUOTE (melissas @ Mar 27 2009, 12:07 PM) My husband and I have been a REIN Member for 5 months now, and have been "getting all of our ducks in order" so to speak and, are now ready to buy our first investment property. We are very committed to our vision of what we want real estate to "do" for us and are looking to find a mentor. We are very inspired by what we learn at REIN and would like to know if anyone would consider being our mentor. We have been informed by our mortgage broker that we are in a good position for the purpose of investing as far as available funds are concerned. We have been viewing many single family homes and have started to wonder if it might just be easier to buy an apartment building right off the start? We intend to use our home equity line of credit to support our down payment and have found some homes and apartment buildings that cash flow fairly well. Can someone please guide us as to where we should start? Thanks for any suggestions!
drop me an e-mail or a PM if you wish ..

ask yourself or define:

a) $s available to invest + reserve for vacancies, upgrades, closing costs
b) macro-area to invest in .. then micro-area (i.e. sub-location i.e. NE north of XYZ street and only betweeen A and B Ave etc. ..)
c) degree of leverage i.e. high cash-flow (low leverage) or higher-leverage, higher ROI but less to no cash-flow ?
d) are you comfortable signing a personal guarantee on the mortgage ?
e) who will manage it impeccably once you own it ?
f) time line = 5 years minimum usually ?
g) old and ugly with upside .. or pretty and expensive ?
h) do you know enough to separate wheat from chaff .. i.e. do you know what is a good deal and what is overpriced taking into consideration macro-location, micro-location, CAP rates, replacement costs, vacancies, rental upsides, condo conversion potential, rent controls, bond rates, mortgage rates, expense management ...
i) lock in mortgage from the start (with CMHC ?) or 12-24 months short-term mortgage .. then sale or re-fi with higher mortgage to pull out equity ?

 

[melissas]

Thanks so much for the replys it is very helpful!

 

[RosePellar]

QUOTE (melissas @ Mar 27 2009, 02:07 PM) My husband and I have been a REIN Member for 5 months now, and have been "getting all of our ducks in order" so to speak and, are now ready to buy our first investment property. We are very committed to our vision of what we want real estate to "do" for us and are looking to find a mentor. We are very inspired by what we learn at REIN and would like to know if anyone would consider being our mentor. We have been informed by our mortgage broker that we are in a good position for the purpose of investing as far as available funds are concerned. We have been viewing many single family homes and have started to wonder if it might just be easier to buy an apartment building right off the start? We intend to use our home equity line of credit to support our down payment and have found some homes and apartment buildings that cash flow fairly well. Can someone please guide us as to where we should start? Thanks for any suggestions!
Hi Melissa: I have been a REIN Memeber for a year now and am also looking at multi-family investments of 5+ units. There is so much to learn but I have found the Multi-Family Gold Mine Program available through REIN very helpful. I did another course before that and got a lot of useful info but it was U.S. based so the 2 together helps and the CMHC website is also helpful. So for you, check out the REIN Multi-Family Gold Mine Program and go on the CMHC website. Good luck with your hunt and keep in touch if you wish by e-mail - [email protected]. Also, don`t be afraid to talk to realtors who specialize in these kinds of properties. They can be a huge source of information.

 

[emarsig]

Hi there,
Just would like to add to Thomas` Post. My first property was a 5 plex, then 14 plex, then 15 then 52, then 52.
In my experience the biggest challenges are:
1. Higher than expected repair costs. It can be huge! 10% of income is usually not enough. Remember, the building is being offered because it causes someone enough pain.
2. Lower than expected income. Tenants "played" me in the beginning and I believed in integrity. Now I believe in my systems and tenants respect me. This means prompt rent payments, no skipping of rent, no friends in the apartment (who become default sublessees without a contract).

Multi family is better since you have less vacancies. I`ll explain: If you have a house and it goes vacant for 2 months you have 16.7% vacancy for the year. If you have a 5 plex and 2 suites go vacant for 2 months you have 4/60= 6.7% vacancy.

 

[Nir]

QUOTE (emarsig @ Apr 8 2009, 10:21 AM) Multi family is better since you have less vacancies. I`ll explain: If you have a house and it goes vacant for 2 months you have 16.7% vacancy for the year. If you have a 5 plex and 2 suites go vacant for 2 months you have 4/60= 6.7% vacancy.

Actually statistically, in the long run, you have the SAME vacancy. it does not matter if you have one 10 plex, 10 single family homes or 1 single family.
If 5% is the average vacancy rate in the city then in the long run you can expect 5% of the units to be vacant on AN AVERAGE month (or day or year) in ALL 3 scenarios above.
The source of the confusion is in your example you are not taking all scenarios and their probability, just one case. if you took all you would find same expected vacancy, meaning 5% vacancy for example remains 5% regardless of the property type.

(it is the positive cash flow per property that is expected to be different as 1 vacancy still ensures positive cash flow in a 10 plex vs. single family home but that is not what was mentioned and not related to the fact you should still assume the same vacancy cost (i.e. 5%) regardless of the property type. for the same reason it is not recommendation to plug in a different vacancy rate based on the property type when analyzing a property).

 

[invst4profit]

Most novice investors greatly under estimate expenses and are overly optimistic in regards to cash flow.
Do not be mislead by real estate agents or sellers with there numbers on cash flow. They always over inflate to make a property sound more appealing. The sellers tax returns are a better indication of real NOI.

You should also keep in mind when starting that different institutions set a different number of units per building to determine residential or commercial mortgage.

 

[Anonymous]

We started by:
7 plex, 3 plex, flip, 5 plex, 2brm, 3 bdrm, condo, town home condo...

We have then purchased 35 more town home condos...

Here is my 5+ year`s experience.

My flat apartment (portfolio of condos) has about the same vacancy rate as my multi`s. The difference is that my tenant turn over is lower in the condos, the renovations are lower, the rent is higher, and i don`t pay any of the utilities.

I have also been able to attract 50 Joint Venture partners... this has been key in learning how to raise money.

I think the up front transaction is easier in a multi - one PS vs. singles but, if done right, a portfolio of singles can be less headache and more profitable with many possible exits.

The risks are also lower as you get your feet wet in singles.

I think this really is a PC / Mac type conversation... everyone has their preference for different reasons...

They key, ensure your buying decisions will align with your Belize and how you want to grow your business. Thomas had many great points for consideration.

Hope that helps.