Hey monkeys,
I’ve gotten to that stage in life where I’m looking at purchasing my first property. I’m looking into buying a 3-flat property with 2 beds and 1 bath each unit, and living in one of the units myself.
What are the some of the benefits/risks to this type of investment? How should I be looking at cap rates? What are the best real estate investing books you’ve read?
Full disclosure - I plan on putting ~10% down on a property that is $800k.
Any advice is appreciated. Thanks.
Great idea, this is how many real estate investors got started. You should look out for a few things:
Know how to estimate the rental income and the vacancy allowances. Your units won't be rented 100% of the time. And your units are not drastically more special than the ones nearby. People are still price sensitive.
Know the expenses associated with owning the property. Weirdly, a lot of people overlook property taxes and HOA dues if applicable. Talk to people in that neighborhood you're looking at. Really get to know the neighborhood. Drive through it in the morning, afternoon, evening and spend a Friday/ Saturday night driving around. You want to know the area intimately.
Im assuming you know how to use MS Excel. Build out a basic pro forma for your income. Theres many online you can just download for free too. This isn't always necessary, I have some good friends who don't even know how to make a formula in excel and they do well with investing.
Generally speaking, cap rates are pretty compressed right now. If you have any time, you might be better off looking for something where you can add value. Personally, I love places that have ugly paint jobs. Painting is easy and can be done yourself on the cheap- yet many potential buyers see vomit green and immediately say no. Shaggy carpet is also great, easy to throw in some laminate flooring and it looks like much better. Which brings me to my next point..
Meet a good contractor. Your contractor will make the difference from you wanting to jump in the bathtub with a toaster or feeling like you're a real estate genius. Do not underestimate how useful your GC is. Don't cheap out on them either.
Check out Bigger Pockets, though you have to wade through a lot of bs they have some solid advice every here and there. If you have more questions feel free to PM me.
haha ... everyone loves this question. I love it also.
Yes. Do it. I bought a new duplex 4 months ago with 10% down 2 blocks from a major downtown (my wife and I take the train into work, sold a car, so nice getting out of traffic).
I am in development, but I did not really value the property normally, I just figured out what my monthly housing expense would be and what my cash flow would be if I moved out and rented both units. Bottom line:
-2500 mortgage (taxes, insurance, PMI included) -120 utilities +1400 rent +60 utilities +500 mortgage principal paydown (only gets better) +100 tax benefits (writing off loss (cost segregate/accelerate depreciation, interest expense, etc.) (in a high marginal tax bracket))
$550 housing expense for my wife and I just outside downtown! We are hedged against inflation significantly and we have the potential for big upside in appreciation)