New Investor Dilemma
I am a new college graduate with a degree in electrical engineering. Now that I have a job, I am finding that I have money that is burning a hole in my pocket. I am currently renting a condo with a friend, but he bought a house with his fiance and is moving out. I am considering 3 options.
1) Buy a multifamily and owner occupy.
2) Buy the biggest SFR I can afford and just live there.
3) Buy two or more lower priced houses and live in one, rent the rest out.
I have read more real estate books than I can count and I would definately say I am analysis paralized. I have excellent credit and have just shy of $10K saved up. I realize that since I dont want to spend the next 40 years of my life(or more) in a cubicle, real estate is the way to go. Im just not sure where I should start.
I have been involved with a realtor that specializes in commercial properties(actually I have been working with his understudy). He has me looking at a 4 unit property, $220K asking price, built in 96, with the seller willing to finance a second. The seller is in another state and currently has a property management company taking care of it. The invoice the property management company sent the seller shows a loss of $7k for the year through September. The realtor is continually telling me that since I am going to be managing the apartment I will be able to make it cash flow(as long as I pay the market rent for the unit I live in). Im not sure I want a second job and even though Ive read a lot of books, I have no experience managing property. I also feel that I should evaluate my NOI based on the costs of using a property manager since my goal is to eventually purchase more properties and I wont want to live in an apartment forever. The realtor also tells me that since the property is new, it will appreciate quickly. The vacancy rate in the area seems high to me making it unlikely the rent will be raised any time soon.
Any advice?
Thanks,
Ryan
Welcome fellow iowan! The most accurate thing to do with multifamily rentals is to simply add up all the income and expenses. You should be able to call the realtor to get expenses such as water, garbage, heat, electricity, etc. Find out a number repairs if you can. Based on a summary of hundreds of properties I looked at, a very high estimate is $50 per month per unit. That obviously can be extremely off depending on the building.
Figure out how you plan to pay for the building and figure out debt service. Do you make any money at the end of the year? What happens if a tenant doesn't pay on time? There is a lot to consider.
Another option that seems very profitable is to buy a fixer upper house and live in it for 2 years and then sell it. Your gain up to $250,000 is TAX FREE! No paperwork to fill out or anything. I know a gentleman that has never had a job but has bought and sold houses for the past few years (he is on his 2nd house). He made 100k on the first one and he lives easily on that for his lifestyle.
There are so many options to consider. You should just find out what you are comfortable doing. You may want to put your $10k somewhere so that you can't spend it.
GOOD LUCK
Ryan4069.
Glad to meet you.
Yes, I have some advice for you, do not touch the black wire to the white wire and make sure the green wire goes to ground.
It is probably true by the nature of the beast (engineering) you have a tendency to be over analytical on most things.
The realtor told you that the property will appreciate quickly, what do you think they were going to say.
I would learn to check out the area and comps to see exactly what the appreciation rate is.
The realtor also says if you live in one of the units it will cash flow, so you need to move into the property or it is a bad deal the way I see it.
Now you have given three options you are considering. Take these three options and figure out the best appreciation rate over a period of time, you may find a SFH will make you more without the headaches of landlording.
Or purchasing two smaller houses and living in one and renting the other may suit your needs. In other words put a pencil to your options and decide without someone with an ulterior motive guiding you.
John $Cash$ Locke