My dawgs,
Like ~25% of NYC residents right now, I'm laid up with some kind of flu. While I lay here on what feels like my deathbed, I was hoping to gain some experience / understanding from people like you - people with experience / understanding.
I'm looking to make my first play into buying a Multifamily property this year in a much more affordable, Southwestern city. I'm lucky that due to my previous job, I would not have put any money down. However, I would have to live in the unit to secure the financing. Not a huge deal since my current job is remote and I'm a bit tired of paying through the nose to afford Tribeca.
In terms of my question - I was hoping to see where you all started who have made similar investments? Were there modeling courses, guides, books, courses you took? I feel a bit lost but have been basically treating all modeling I've done thus far like an LBO. Any insight or wisdom that any of y'all studs would be wiling to impart would be very very helpful.
Hey there, fellow real estate enthusiast! Sorry to hear you're feeling under the weather, but it's great to see you're using this time to gear up on some multifamily investment knowledge. Here's a little wisdom to help you on your journey:
Modeling Multifamily Investments: Treating multifamily modeling like an LBO isn't a bad start since you're considering the leverage, but remember, real estate has its own nuances. You'll want to get familiar with terms like Net Operating Income (NOI), Cap Rates, and Cash-on-Cash Returns. The WSO Real Estate Modeling Course could be a gold mine for you. It's tailored to give you the ins and outs of real estate financial modeling.
Books and Resources: There's a treasure trove of books out there. "The Complete Guide to Buying and Selling Apartment Buildings" by Steve Berges is a classic. Also, don't overlook the WSO Networking Guide. It's not just about who you know; it's also about knowing what they know. Networking can lead to valuable insights and mentorship in the multifamily space.
Living in the Unit: This is a smart move. Not only does it help with financing, but it also gives you a firsthand look at the operations and tenant experience. Plus, you'll save a bundle on living expenses.
Courses and Guides: Besides the WSO courses, consider local real estate investment groups or online forums where you can learn from others' experiences. Sometimes, local community colleges or universities offer courses in real estate investment that could be beneficial.
Remember, every multifamily property is its own beast. Location, tenant mix, and local market dynamics all play a huge role. So, while you're sipping on that chicken soup, dive into some financial models, and don't forget to check out the local scene of your target city. Get well soon, and happy investing!
When you say multi family, but have to live there am I wrong to assume duplex/triplex/fourplex?
Yea sorry if Multifamily wasn’t the precise term - right now I’m targeting duplexes / triplexes.
That’s not classified as MF most banks will recognize it as a single property and you can get a regular mortgage not an investment loan. Fannie and Freddie will push you to single family. I’m sure elsewhere than this forum there will be a pretty big community that can help, the models listed here would be way tedious for a simple 1-2 unit rent roll. But it is a popular influencer house hack trend that’s become mainstream so I’m sure there are good resources. Just stay away from the models the creator shows a 22% cap rate.
That's really helpful, I appreciate the insight bruv!
For SFR isn’t the model effectively:
Rent
- Vacancy factor
- Credit loss
- Mortgage
- HOA
- Taxes
- Insurance
- CAPEX reserve
- Maintenance
- PM fees
- Turnover cost
I suspect that others will give you tips about how to underwrite it financially, but remember: that doesn't matter. Obviously you need to have a grip on your expenses, but all of the risk and all of the work is going to be tied up in managing the property. It is so obvious that I think a lot of people (myself included in the past) tend to overlook that fact. Do you really understand what it takes to be a landlord? You rent right now, you said - do you DIY a lot of your repairs, or do you call the building super?
When you're living in your triplex in El Paso and the A/C goes kaput in July, you need to fix it. Not tomorrow, not when your bonus hits, not when this earnings call is done, it has to be done immediately or you can face financial and legal consequences. When your water/sewer bill goes up and you can't immediately pass that cost on, does your cash flow support that? The way I look at it is, you are going to spend a lot of time or a lot of money keeping your property up to code and habitable. Do you have the luxury of that time? If not, are you willing to watch all your free cash flow go up in smoke as you hire people to take care of those tasks for you?
A lot of the people who execute on this strategy aren't actually landlords, they're gambling on cheap debt and flipping these things to the next sucker after 12-18 months. And almost certainly inflating their success on the internet.
The other thing that isn’t mentioned is tenant screening. A good screening should include: past landlord references (actually do it and look up that the numbers they gave are actually the landlord and not their friend), a credit score, a background check, an income verification. Have stringent, legal qualifications (make counsel take a look) and don’t bend, ever. All it takes is for one tenant to stiff you, take six months of lost revenues and court costs to evict and then trash the place on the way out.
100% agree. This site is highly finance-focused, so it's not surprising that you get that view most of the time, but I think a lot of desk jockeys sit there and think "real estate is passive income!" as if the rent checks always come in on time and the expenses always track with what you budget. If you want to do this yourself, even a small building is a full time job, and the way in which being a small landlord gets discussed on here, I think people forget that. A ton of talk about cap rates and rent growth, all of which is meaningless - you cannot control that, and if your first is focus on markets where there is growth potential, you are probably ignoring the fact that you aren't capable of managing an asset properly, so it doesn't matter where you buy.
The last question is "where to buy/at what basis?" The first 99 should be about how you are going to manage the myriad risks and uncertainties involved in being a landlord. Finance bros neither take nor properly understand risk, so it's not surprising that gets overlooked, but it's the most important step.
The mailbox money stuff is so farcical, I had signed a multi year lease, was a great tenant, paid on time, kept the place up. But the landlord still had to deal with an HVAC unit that crapped out and another major mechanical issue. It’s ultimately an operating business, managing an asset. Also, the spreadsheets will suggest that war zones (C-/D properties) are the place to invest, but most folks on here aren’t cut out to be slumlords.
First of all - sick name.
Secondly, this is all really helpful. And I totally agree. Not that I have the ability to pick my own stocks (currently work in IB, pls ignore my listed title here), but as an example, public equity investing is way way more palatable (activity-wise) given my absolutely ass work-life-balance. I don't have social media but can only imagine it's saturated with people that love to sell the "I'm an overnight resi real estate tycoon" b.s.
I think the way I'm ultimately viewing this is a safety net against working on Wall Street. The money is great right now, but you can be fired at literally anytime. I would say getting properties to cash flow (in a simple model) and feeling comfortable with the level of activity it can / likely does take to be a landlord are my two biggest hurdles at the moment. While interest rates my come down in the future, that second hurdle will always remain. Part of the criteria I'm including in my initial screen of target properties includes locations that tend to be more friendly for landlords. While I'm absolutely planning on running all of the aforementioned checks on prospective tenants (background, credit, legal, etc.), I want to have the hopeful safeguard of being able to evict. Lastly, I'm a pretty frugal guy. Recently moved to a much less expensive area in NYC as a means of de-risking my income / prospective debt to free up excess liquidity for the exact reason you pointed out above re: the A.C. unit.
By no metric do I feel like I'm going to rush into this galvanized by some social frenzy. However, I feel like having the opportunity to have a fully-levered, cash-flow generative asset (despite the rate environment) is something that shouldn't be taken lightly.
The first point you made is completely accurate. I recently looked at a townhome with an apartment in the basement and to me it wasn’t worth it dealing with being a landlord. We have family friends who have a huge townhome in Kalorama DC could easily get 2000-2500 for their apartment in the basement, easily 1200 sq ft and they don’t want to deal with it.
Check out www.biggerpockets.com, your kind of investing is primarily what that site is about.
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