Where to start- Single or Multifamily?

[SSmino]

To give a little background - I`ve been studying real estate by reading books, blogs, forums, etc... for about 4+ years now. Probably a lot longer than some participants of this forum. I`ve looked at doing it on my own with my own capital but quite frankly I don`t feel comfortable doing single family homes. I`m after the cash flow and not the equity with the theory being that I can reach the financial freedom barrier faster and after which begin to build my net worth. That being said I`m also attracted to the multi-family aspect because of them having more units, are evaluated differently by the lenders (DCR, CAP ratio- ie. the numbers!) and the chances of the entire building going vacant are low.

Now in speaking to friends and family members I have the potential to raise a good amount of capital with most interested in the equity portion of the projects. So they want to help me help them by having a secure place for their cash for the long term. Instead of one large multi-unit we could purchase several smaller ones as a start or many single family homes.

So here is my question - what would you do?

Start with Single Families and work up to multi-units, or my idea, partner up with an experienced multi-unit investor whom can guide me on the project and make money in the process? (even if i have to give up a good portion of my end to get the experience). Or is this too much too soon, pie in the sky idea.

Because I don`t have any experience, from my understanding, the partners experience helps show the bank the `teams` experience and assists in getting funding easier (possible!).

I think its also important to mention of me having $8k/month income goal for the short term - 4 years, and I plan on hiring the right PM company to manage the properties.

Your help and guidance appreciated.

SSmino

 

[Thomas Beyer]

QUOTE (SSmino @ Nov 9 2009, 09:44 PM)
T..



Start with Single Families and work up to multi-units, or my idea, partner up with an experienced multi-unit investor whom can guide me on the project and make money in the process? (even if i have to give up a good portion of my end to get the experience). Or is this too much too soon, pie in the sky idea. ...



SSmino


you can start with multi-family .. as it starts with 6-plexes .. all the way up to 300+ plexes .. more skills, more $s, similar principles !



Related posts worthwhile a read related to getting started and multi-family especially !



5 ways to make money http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html



How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html



Feel free to contact me if I can help you as a mentor ..



don't attempt serious MF with less than 500K cash .. for a $2M asset, i.e. a 24 suiter or bigger .. anything below 20 plex is nice and at best a learning ground but not to make serious money .. so maybe start with 200K to buy a 6 or 8 or 10 plex to learn .. then scale up ! Time for due diligence is almost the same ...



better $1M cash for anything meaningful .. like a 40-60 suiter .. or 3 20 suiters in close proximity



for an 8K cash flow $1.2 to $1.5M minimum as cash-flow is tight unless 50% or less leverage .. see my REIN posts here: Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html

 

[invst4profit]

Start with a multi 6 or less units to cut your teeth in the business. Being a new LL can be daunting.

$8000 per month, if talking of positive cash flow, in 4 years is not likely realistic unless you have a very large sum of cash behind you and you are prepared to jump in the deep end of the pool without knowing how to swim.
$8000 gross per month is doable but will only produce about $4000 of positive cash flow on average.

Anything is possible just not probable.

 

[Thomas Beyer]

QUOTE (invst4profit @ Nov 10 2009, 07:48 AM)
$8000 gross per month is doable but will only produce about $4000 of positive cash flow on average.



Anything is possible just not probable.


$8000 net cash flow means after mortgage payment. Thus, eliminate the mortgage, and with a $16,000/month rent you'll have $8000/month cash flow .. roughly .. $16,000/month in rent is a 20 suiter @ $800 per. What does a 20 suiter cost: maybe $100,000 per unit or $2M in Edmonton, 50% more in Vancouver, 25% more in Calgary .. about the same in GTA .. 20-25% less in smaller towns .. so $1.5M is required for an unlevered 20 suiter for $8000/month cash flow .. more or less ..



Not the best investment for cash .. as levered works better i.e. returns a higher cash-on-cash return in a flat market due to mortgage paydown.



See my links in this post here (equity gain is not the only way to make money)

 

[invst4profit]

Oops! Sorry I subtracted expenses but forgot the mortgage.

Actually $2,000,000 at 5% costs approx $11,600/month which on $16,000 income only leaves $4,400 to cover expenses.

 

[LifesMoneyPeople]

I am also in a situation like OP

I am in northern ontario where some large multi unit can be same price or cheaper then some of the higher end houses

My predicament is a 50 year old hotel turned residential. Can anyone outline if I did any renos at all like as basic as ripping carpet out and putting laminate would I have to bring everything up to code????. I am going to have complete walkthrough and talk to city officials this week. I also have the survey of the building and numbers and by REIN numbers it amazing deal.

It is excellent location 25 unit building with 1st being restaurant and basement being a conference hall and additional 2 floors of 25 units about 70% rented currently. 12500 above ground, 8500 underground

same also no experience looking at single family and multifamily homes but I am more attracted to large cash flow over equity growth

no outside money though on this end though but I am ready JV secrets and hoping to find my answer there(OPM)

sorry to OP for high jacking your threads but never know it might also help you too by some of the interesting answers we might get


Chris

 

[Thomas Beyer]

QUOTE (LifesMoneyPeople @ Nov 10 2009, 05:02 PM)
...



My predicament is a 50 year old hotel turned residential. Can anyone outline if I did any renos at all like as basic as ripping carpet out and putting laminate would I have to bring everything up to code????. ...


check zoning ! Hotel is commercial zoning wqith higher taxes and residential housing may be a different zoning .. thus you may need re-zoning and thus, city council approval, and thus no grand-fathering may be allowed by city ..



If former hotel then likely rooms are SMALL .. thus: bachelors with high turnover .. but could make a lot of sense if bought cheap enough ..



Older buildings may have SEVERE deferred maintenance such as: plumbing issues, boiler issues, asbestos remediation issues, roof issues, foundation issues .. make sure you do a VERY THOROUGH engineering assessment as this could cost BIG TIME !!



Also check with a mortgage broker on loan-to-value in small towns .. very hard to finance !



But, done right .. might be a great cash-cow !!

 

[LifesMoneyPeople]

QUOTE (ThomasBeyer @ Nov 10 2009, 08:12 PM)
check zoning ! Hotel is commercial zoning wqith higher taxes and residential housing may be a different zoning .. thus you may need re-zoning and thus, city council approval, and thus no grand-fathering may be allowed by city ..



If former hotel then likely rooms are SMALL .. thus: bachelors with high turnover .. but could make a lot of sense if bought cheap enough ..



Older buildings may have SEVERE deferred maintenance such as: plumbing issues, boiler issues, asbestos remediation issues, roof issues, foundation issues .. make sure you do a VERY THOROUGH engineering assessment as this could cost BIG TIME !!



Also check with a mortgage broker on loan-to-value in small towns .. very hard to finance !



But, done right .. might be a great cash-cow !!




zoning residential/commercial. only thing commercial is restaurant and conference hall no offices



It was a hotel and now is residential and has been some time at least from the 80's



Yes it is cheap but I dont want to be posting numbers. Yes I have the survey in front of me so rooms are small(considered bachelors) but I might look into joining rooms in later date to say move from 25 units to 12. 2 are actually already setup like this so I hope to use these as basis if I moved into extensive/expanding rooms renovations



Condition wise is what I hope to see on my walkthrough and will also have family member with me that used to be a engineer. We have already seen the outside and everything looks fine. one part that worries us is there is parking above one part of the basement and we will be looking into any water seepage that might happen at the parts where the concrete come together



Plumbing no galvanized, Boiler 1995, hot water heater 2000, electrical 220, roof is flat and gravel hope to go up and inspect on walkthrough, foundation no idea I hope not(but I think there might be something considering the price and the amount of rent it takes in monthly there has to be a catch so I hope to find it), will look into asbestos remediation issues(but dont see it as 19 out of 25 are rented but never know)



I was expecting financing would be easier because its a commercial deal(look at the numbers DCR and CAP Rate) and I have read it on the forums that it usually is easier to get multiunit but I will definitely trust Thomas on this one as I know he has already had some deals in Northern Ontario



and yes the opportunity for this to be a giant cash cow is pretty scary let alone what it is making now

 

[Thomas Beyer]

QUOTE (LifesMoneyPeople @ Nov 10 2009, 06:18 PM) .. look at the numbers DCR and CAP Rate..
Expect DCR of 1.5 and CAP rate around 10% .. using vacancy numbers and expenses that suit bank .. only a specific application and approval will tell .. local credit union might be better than big national firm for a decent mortgage in the 6.5% to 9% range with a 15 or maybe 20 year amortization .. run cash-flow numbers accordingly ..

put champagne on ice .. but don`t party until the bank has sent the money as many a deal these days falls apart last minute over some detail !

 

[NiagaraInvestor]

QUOTE (LifesMoneyPeople @ Nov 10 2009, 07:18 PM) Plumbing no galvanized, Boiler 1995, hot water heater 2000, electrical 220, roof is flat and gravel hope to go up and inspect on walkthrough, foundation no idea I hope not(but I think there might be something considering the price and the amount of rent it takes in monthly there has to be a catch so I hope to find it), will look into asbestos remediation issues(but dont see it as 19 out of 25 are rented but never know)The current owners should have an asbestos survey for you.  Found this on the net but can`t find the reg yet will post it later if and when I find it.

Owners of commercial properties and residential complexes with 6 or more individual units should refer to sections 7 and 8 in the new Ontario regulations that have come into effect November 1, 2006. As an owner or property manager you need to know your responsibilities.

From my experience this is not common knowledge among building owners but it is law in Ontario.  If they don`t have one make them get one done by an environmental consultancy..