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Old 10-26-2008, 05:39 PM
 
Location: Marion, IA
2,794 posts, read 5,888,011 times
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I've saved enough money to put 20% down on up to a 6 plex property if I want to, but I dont know what a good start would be. A 2 plex seems like it would hardly cash flow, unless it was cheap. Is it worth it to start into a 6 plex right away? Or should I be looking for a 4 plex? What are some recommendations for a first time investor?
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Old 10-26-2008, 10:33 PM
 
Location: New England
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I would go with a 6-unit but it depends on where you stand as a beginner. Are you going to manage the building yourself or use a PM? Are you handy and able to handle a lot of the small repairs yourself? Have you studied up on local real estate laws and know what you can and can't do? Do you have time to handle emergency calls and take care of lawnmowing and snow removal? I find the higher number rentals return the most income but to be very time consuming so it all depends on your personal situation and plans.
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Old 10-27-2008, 08:07 AM
 
Location: Marion, IA
2,794 posts, read 5,888,011 times
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Thanks that helps a lot. I am handy and run a lawn mowing service so could easily do the lawn maintenance stuff.

About how much time per week do you think it ties up a landlord taking care of his property? I also work a full time job.
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Old 10-27-2008, 09:13 AM
 
Location: Knoxville
4,677 posts, read 24,068,975 times
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A lot depends on how old the building is, or components such as heating and air, water heaters, roof and appliances.

If the building is newer, then your maintenance problems will be less. If the building is close to 15 years old, then you will be facing a long line of replacements and repairs, just because things are wearing out in the 12 - 16 year range.

Be sure to get a good home inspector to check out the building so you can get an accurate idea of what you have.
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Old 10-27-2008, 11:37 AM
 
1,095 posts, read 3,837,782 times
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Something to think about while you're kicking this around . . .

If you buy a duplex and things work out and you want to buy more, you'll end up paying the same fixed costs three times - closing costs, loan points, appraisal, inspection, etc.

If you get over 5 units you should be looking for a commercial loan. Commercial real estate is valued differently, based on the net operating income of the property, while "residential" loans are based on the appraised value of the property. You have to rely somewhat on the accuracy of the numbers you get from the seller, but you should be able to have a really good idea of the cash flow from the property before you buy it. Banks will then evaluate the deal based on the net operating income and the all-important debt service coverage ratio - the amount of NOI the property generates in relation to the debt service (principal and interest on the loan).

Beware using an agent who mostly does residential if you are looking for commercial properties. You need someone who understands how to value a commercial real estate deal.
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Old 10-27-2008, 01:18 PM
 
Location: New England
740 posts, read 1,789,956 times
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I live in New England and most of the buildings are around 100 years old, but they were built very well. If your heating and cooling system is in good condition it should minimize your calls. Most of your calls will be for clogged toilets. Make sure you run credit checks on prospective tenants. I notice it depends a lot in which area your building is in. I have a building that size in one town that I get calls on every week and the other building that size in a different town I get a call about once a month. This has been like this for years with different tenants and the buildings are in about the same condition.
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