Key Things To Look For When Seeing A Multi-unit Property?
Going to see my first two multi-units (2-3 units) today. I've read books on what I should be taking notes on, but I would like to hear some of the key things you all look for when seeing a property for the first time? (Looking to hold on to this property as an owner-occupied then a rental eventually).
Hey, Franzzy.
There are numerous things to look.
But my feeling is that you really don't need to concern yourself with as long as you're getting an inspection.
I could rifle off a list of structural concerns to look for but, like I said, that's an inspector's job really.
And even if I do list them, chances are you won't be able to recognize them your first time out.
In fact, you could misdiagnose things and cross off perfectly fine properties.
I've found the best way to learn about good and bad homes is to shadow the inspector. After a few inspections, you'll get familiar with red flags: how to spot them, how much they'll cost you, when to run for the hills, etc.
That said, here's my advice:
For multi family investments, focus on the tenants.
Find out their status from the listing agent, ie when do the leases expire, how many units are occupied/unoccupied, how much are the rents.
Also, as part of your due dilligence, I think it's imperative that you eventually speak with the tenants. And do it before you sign the P & S. Not after.
I've learned this lesson the hard way.
Fact: tenants are a valuable resource for a perspective investor. You see, the seller won't be entirely honest. But the tenants will give you all the dirt you need on a place.
I've backed out of many deals after having lengthy talks with the tenants about how unhappy they were with their units. They give you insight into what's wrong, ie the heat never works, the water pressure sucks, the windows don't close properly, my stove is a fire hazard, the neighbor next door is a convicted rapist, etc.
This is invaluable info and often really sobering.
You also want to ask them if they plan on resigning/staying when their leases expire.
Like I said, this is all valuable information to the investor.
Finally, as you've said, you're looking to move into a unit and lease the rest.
So the ideal situation for you would be say a 3 unit multi, with 2 units leased long term and one unit empty.
Personally, I'd steer clear of the property that's fully occupied. The reason: if you need to move in, it can be a real bitch to evict a tenant who doesn't want to leave. And even when you do start the eviction process, a judge is going to give them 3 to 6 months to find adequate housing.
In cases like this, things can get real ugly.
Also, sorry I haven't followed up your email about financing options. I will soon. I've just been busy all weekend with my own rehab. Plus somebody stole my car.
Good luck and feel free to email me if you need clarification on some of my suggestions.
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At some level any property that is 1-4 units can be viewed in the same way. A property that is 5 units or more falls into a different camp (commercial property, built differently many times and certainly owned/financed differently).
Having the place inspected will help a lot.
You will want to verify the rents and the expenses. When looking around take notes and then see if the paperwork supports the condition, etc.
Look for ways to make changes that might improve the cash flow.
Again, 1-4 units building will be priced differently then a 5 unit or larger structure.
John
[addsig]
Thanks for the advice. Shadowing an inspector sounds like a really good idea.
monkfish, could you give me a ball park figure on what an inspector will cost me?
Following up on the tenant stuff:
Franzzy, sometimes just the act of asking the seller if it's okay that you call the tenants will give you insight into a property.
I once asked a seller's agent for the telephone numbers of the tenants and the agent told me, "The seller would prefer you didn't speak directly with the tenants."
Red Flag!
Now, I don't need the seller's permission, but I ask just to see the reaction I get.
If the seller is perfectly fine with me calling the tenants, I know he's got nothing to hide.
But in this situation, it was clear the seller had a secret.
Long story short, I actually went and visited the tenants and learned that the seller was lying about parking, that he and a neighbor were in land court over an 8 ft. easment on the property. The property, in fact, had no parking at all.
Moral of the story:
Do your due dilligence, Franzzy.
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Home inspection prices vary.
In multis, they charge by the unit, as each unit is considered an individual property.
My last inspection ran me roughly $600 ($300 per unit).
When looking for an inspector, be sure to use only an ASHI certified member.
Check their website for a member in your area:
http://www.ashi.com/find/default.asp
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