First property- Multifamily advice

Hi Guys,

I am a newbie to the real estate market and would appreciate any advice you have on purchasing a multi-family. My husband and I are interested in purchasing near Jersey City so advice in particular to that market would also be useful. We saw one 3 family that looked interesting to us. What are good resources, issues, questions to consider? Thanks in advance.

Sherry

We are newbies too, but what we did is created a spreadsheet to compare properties and also look at the bottom line. These are the factors I plugged into my spreadsheet: purchase price, number and type (bedrooms) of units, the rents from those units, anticipated mortgage payment, property taxes for county, borough/city, and school, casualty and flood insurance, and any utility and recurring expenses (IE snow removal/lawn service). I set up the sheet to add up the rent amount from each unit and then subtracted the mortgage, taxes, insurance, utilities and expenses. Once I did that I discovered that most of the turn key units were not profitable if we could not buy them on a cash basis. We also noted if the building was split utilities or not: if landlord has to pay water/sewer/trash, heat and etc. We prefer completely separate utilities that way tenants are responsible for their own heating, hot water and water bills, not us. We were willing to pay water/sewer/trash only but even that can add up.

When putting the chart together check comparable rents, we found that many properties had lower than market rents. I use Craigslist and rentometer to check rent. The one that we did buy had below market rent so we knew there was room to make more money on it. One quality building we found seemed to have low rent for the building but after checking Craigslist and rentometer we discovered we could not ask for much more in rent due to location.

Take a good look at disclosure information as you would with any property. Occupancy rate may be unit related or could be poor management related- so take that with suspicion if low compared to how the unit looks. Also the ROI and anticipated mortgage payments, calculate them on your own.

Our biggest dilemma in purchasing our second unit (we got lucky with our first one being turnkey and profitable). We found that most multifamily units for sale in our area needed a great deal of work immediately and within the next two to five years, so in addition to the normal down payment we would need an extra $30 to $50K available to keep them viable. We found a lot of properties on the market that had been milked as cash cows for years with little reinvestment: old windows ind disrepair, needs new roof, water damage and etc. These units are great if you can do the work yourself but even then you need to pay for materials and may need to pay labor if you need an assistant on tasks. How long will the building sit empty while you fix it? With us not being handy we knew we needed turnkey properties only.

Don't go with your realtors suggestion because they recommend inspectors that are helpful to their bottom line: closing the deal. Instead, I searched for an inspector with previous building experience; the one I found was a retired contractor. No inspector can find everything but ours found many serious problems on a triplex that looked wonderful and had a great profitability. Once we got the report we computed that it would need $50K or more in repairs and then the unit became unprofitable. Then we understood why it didn't sell the summer before and why the price had dropped so much despite the stable market here.

That's another point, good multifamily properties go quick in our area, any property here that's been on the market more than three months either probably has some sort of serious issue or will not be profitable for the rents you can charge. Even if a sale fell through, good ones should have more than one bidder and the seller can go back to the other bids.


The hardest thing was to not buy the best looking, most likeable unit and hold out for the one that passed our spreadsheet test. We found our fourplex by waiting for the right listing and jumping on it immediately. I used an email notification service via our Realtors website that sent me updates on new listings and price changes. I got the email notice on the new listing on Saturday, it had a 48 notice to show so we looked at it on Wednesday and they accepted our offer Friday. It was a whirlwind purchase but after looking at 20 units and missing the opportunity to see five units that got snapped up quickly, we realized when a good one comes up we need to snap it.

Best of luck! A.