Multi-Unit Investment
I have owned acouple of single family rentals in the past and have an opportunity to buy a 6 unit building. What should I look out for, and does anyone have experience with these? Thanks, Troy Denver Colorado
Check rent rates for area, condition of like properties, occupancy rates, all the same stuff that you would look at for a single family. Just remember that over 4 units is considered commercial as far as loans go. Check if individually metered for gas, elect, water, sewer.
The biggest thing is location and the type of rentors you will have. If you go low income, then expect high maintence and a bit more turnover. Also make sure you break out your maintaince costs and vacancy rate per unit rather than the entire bldg. A rule of thumb is that you need to be able to withstand 25% vacancy and still make payments for it to be a viable deal.
Getting loans can be tricky for Multi's smaller than $500K. It's a commercial loan....but a real small one.
Your local banks may do it if you're coming in with 25% down, but they'll probably only want to do a 20 year ammoratization.
Not that it can't be done, but it can be tricky. Keep this in mind when it comes to your exit strategy also. Consider asking for seller financing.
There's a lot of opportunity in these smaller multis because they kind of fall in cracks...a little harder to find financing, rates a little higher, not SFRs, etc.
Just go through and carefully document and establish that the fixed up, NEW value on the multi, with the new rent, would be enough to justify your time and $$$ spent in buy & fixup...it might, and you might make a bundle on these.
When you get over 4 units and a loan under $500k, the number of lenders and loans becomes very small. Rates and terms are not the best since there is not a lot of competition for these loans.