Reddit reviews Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits
We found 6 Reddit comments about Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits. Here are the top ones, ranked by their Reddit score.
I love this question and always get it from friends of mine. I just send them the same list of books that got me started and convinced me to pursue strictly investing in multi-family. These have all been out for some time but the fundamentals of deal analysis have pretty much stayed the same. IMO, the multi-family game is all about numbers and finding ways to add value and force appreciation.
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In no particular order (and affiliate link free), these are all easy reads and great resources to get started;
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These will all talk about why multi-family can work better than single family and will familiarize you with concepts such as capitalization rate, its importance, how to calculate it, gross rent multiplier, internal rate of return, cash on cash return etc.
I've grown my re career as an investor over the past 16 years and am still learning new things everyday but for me there is no other tool like it that provides the potential for economic freedom.
> Would I be okay if my monthly mortgage was exactly the same as I could get for rent?
NO. You'll get killed and you'll wind up selling to a bottom feeder like me.
#1 Rule. Buy for current cash flow. When you buy, factor repairs, vacancy property management fees or salaries (you didn't say SFR or multifamily), taxes, insurance, permits or the like, rehab for initial make ready/turns, HOA fees if applicable, utilities while vacant (and while occupied depending on your market's norms), ETC.
> Are there any fantastic books on this subject that you highly recommend reading?
Again, you didn't specify SFR or multifamily. For MF my favorite is http://www.amazon.com/Multi-Family-Millions-Reposition-Apartments-Profits/dp/0470267607 by David Lindahl. He's a very knowledgeable guy that started as a landscaper, began rehabbing for others,quickly saw it was the guys he was rehabbing for that were making the money, ...Now he owns 7,000+ units.
I LOVE this deal but I haven't run the numbers. What does it net a month? Cash flow above the mortgage?
You didn't say what the expenses are but the mortgage would be about $28,000 a year and the gross rent is about $82,000 a year so it looks like a winner.
My biggest concern is property management but keeping the PM is a great move.
I love it. Read this book: David Lindahl's "Multi-Family Millions."
https://www.amazon.com/Multi-Family-Millions-Reposition-Apartments-Profits/dp/0470267607
I can't give you a general rule as to costs but I can tell you about my own niche, which is 6-12 unit Class B multifamilies in mid-size midwest cities. For this specific niche I can tell you that most lenders and thoughtful investors will estimate operating costs at around 35%-45% of revenues. So for example I bought a property whose combined rents were around $66k per year. In this particular case the tenants pay for water (lower ratio) and I knew vacancy rates would be very low (lower ratio) but I wanted to include expenses for management even though I knew I would self-manage (higher ratio) and I knew the plumbing and roof were old (higher ratio). So I was able to estimate a figure around 40% as a rule of thumb for operating expenses. In another case I was looking at a Class C building where I would have to pay more expenses and might not have such an easy time with the tenant base. In that case I estimated around 45-50% operating expenses. (For the purpose of this calculation I am including vacancy as an operating expense; other people will just lower the revenue.)
Note that you should NOT use these or any other ratios as your sole financial analysis. They're more like sanity checks that will enable you to quickly double-check your detailed figures. If your detailed figures come out to only 30% operating expenses but your experience tells you it's a 40% property then you may be too optimistic or overlooking something important. Conversely it can be a great way to identify a good property. If for example the current expenses are 50% but you know you can reduce them to 40% (fighting property taxes, charging tenants for parking, doing maintenance yourself or whatever else) you can raise your NOI enormously.
In your case I would talk with some lenders in your area and see what they would typically estimate as operating expenses for a 4-family. (Residential lenders may not be used to thinking this way so you might have to ask a commercial lender.) If you ask 2 or 3 and they say the same, you will know you have it about right.
All else being equal the expenses on larger properties are going to be a lower percentage than on smaller properties because you don't have as many structural and mechanical elements and because there are generally smaller internal spaces for cosmetics and appliances. This is one of the several reasons I don't invest in single families.
An important way to use the expense ratio is the DSCR (debt service coverage ratio). This is the main way a lender will look at it too. So let's say on some hypothetical property the purchase price is $300k and you put $60k (20%) into it as equity. You have revenues of $50k and expenses of 50%, giving you NOI of $25k. The lender will look at the NOI as a percentage of debt service. So if you have principal and interest payments of $20k your DSCR is 1.25 or 125% (DSCR=NOI/P+I). In the current market most lenders will look for a stable property to have DSCR of 1.2 or 1.25 as a key underwriting guideline. In our hypothetical property, the DSCR tells us that (1) if your estimations are exactly correct you (equity holder) will make $5k in cash on cash profit, that (2) you can underestimate your expenses by up to $5k and still have breakeven or positive cashflow, and that (3) your cash on cash return is anticipated to be $5k (profit) / $60k (equity) = 8.3%.
Hope this helps and isn't too much of a TLDR. I also thought of another book you may like: http://www.amazon.com/Multi-Family-Millions-Reposition-Apartments-Profits/dp/0470267607/. I didn't personally get much from it but it is generally considered one of the best multifamily books.
(Edit: Fixed the DSCR calculation)
If you spend a few hours reading all the rules of thumb on BP you will be pretty far ahead of the average first-time property investor, I would imagine.
If you want to get serious, read the relevant books from David Lindahl (particularly this one) and Frank Gallinelli.
There's /r/realestate too, but I don't read it much.
>How much work would I be looking at?
Quite a bit. That's 8 rooms I'm assuming? If you have a full-time job, then you are going to be having a lot of work on your plate. Expect problems like a sink being backed up quite frequently, especially if you have college kids in there. The main halls would have to be cleaned frequently. Any landscaping? That's all your responsibility or you could pay someone to do it, which will cut into your profits. Then there's collecting the rent every month, getting new tenants and evicting deadbeat tenants. You could pay a property management company, but again, that will cut into your profits.
>Teach me everything.
Commercial property isn't that simple. It can't be taught in a few paragraphs.
http://www.amazon.com/Multi-Family-Millions-Reposition-Apartments-Profits/dp/0470267607/ref=wl_it_dp_o_pC_S_T1?ie=UTF8&coliid=I18T4B88QO616J&colid=1ETOZ16L1GY7H
http://www.amazon.com/Investor-Flow-Financial-Measures-ebook/dp/B004BKIEUS/ref=wl_it_dp_o_pC_nS?ie=UTF8&coliid=IHFWIUNLSDD2D&colid=1ETOZ16L1GY7H
These are both highly recommended books by most people. Read them first before you start dropping serious cash on property. BiggerPockets.com is also a great resource for information.