THE FOUR UNIT BUILDING as an INVESTMENT Want to know the best way to get rich? Buy a four unit building. You and 3 other investors (or future tenants), go in four ways. Unless you can raise or borrow a HUNDRED THOUSAND DOLLARS. 25k each for a condo is smart money. Do it at today’s low rates. This isn't just ANY real estate but real estate that will hold its value, even if single family houses go down.
It is an apartment building and apartment rents are going up. The value of an apartment building has the best chance of appreciating while everything else goes down. Low interest rates mean that you can have a positive cash flow at real estate purchase prices you would have lost your shirt on, when market was high, late 90's or even post 2008, when VALUES PLUMMETED, a decade back. Rates are good now; we used to pay 9% for apartment loans just a few years ago. Apartments have become a better investment because carrying costs (interest costs) have been going down. Second, income has been going up, substantially. Can things be better than this? YES IT CAN. There are two ways to get rich and retire. One is to take people with a small net worth and build an estate or self directed IRA (tax free retirement plan) that is worth up to $800,000 in 15 years and that generates an income of $60,000 per year with both still going up after that. The FANNIE MAE has a loan program for first time buyers. Great idea, but als Check THE CASA IDEA out. AND THE NACA CONCEPT.For those that can put together $100,000 to start there is a second
program where the numbers come in at $1,300,000 net worth, with a $100,000
annual net profit and in only 10 years. Unbelievable? And, with low risk as
well! This comes out to be a 25% annual return with no roller coaster stock
market ride.The problem today with most 50+-year-old baby boomers is that they never
got started in building a retirement fund. So now, instead of having the
normal 30 years to build a retirement fund, they need to be there in 10-15
years. It might take one year of financial hell to come up with some cash.
(That means no money for anything except accumulating cash) But after that,
it can be a sweet painless ride to wealth. IF:1.) The money is not touched for 10 years. That is why a trust fund, IRA
or a self directed retirement plan is a great place to put cash.2.) Pick properties that will give the biggest appreciation and cash flow
as these are the best risks. The 4 unit bldg is at the top of the heap.3.) Many buyers will leap in & pick the wrong location to buy
They need to hear the whole list of criteria. Near public transportation,
like a short walk. Near schools and markets. Of course, near a big
university beats all. Teachers and students need to rent housing and the
area around a university is wholesome. (The exception being U. S.C.)4. As you increase the number of single family houses, management will
increase, ie: owning 12 single family houses can be significantly more
accounting work than three 4-plex buildings. You will also have 12 roofs,
12 furnaces, 12 water heaters to maintain versus the 4-plex buildings that
may have common elements.5. Leasing single family houses can be easy or difficult depending upon
the rent amount you are looking for. If your rent is just a small amount
about the price of a comparably size apartment it is easier.
Duplex (or tri-plex) Real Estate
1. Requires additional cash investment, but typically generates larger
cash flow. Can be sold to an owner-occupant that wants to rent the 2nd side
for additional income.
2. Duplexes can be maintenance nightmares depending upon how/if it was
converted from a single family house into a duplex. I have seen many
terrible conversions that have poor space planning. The other problem is
often the mechanicals are a mess. Whenever possible, you should attempt to
find a duplex that was originally built as a duplex or one that was
properly/logically converted (including having separate utilities for each
tenant to minimize the landlord’s expenses).
3. Duplexes are more prevalent in some neighborhoods than in others, but
can be found almost anywhere.
4. Every investor should have a few duplexes in their portfolio to
diversify their holdings. Duplexes are a good combination of multi-family
pedigree with a single-family demeanor.
5. Although leasing duplexes can be easy, having adequate storage space
and laundry facilities for both units can be a challenge depending upon the
layout of the building.Consider these features before you jump in.
The 4-plex
1. Buying a 4-plex, as expected, requires a larger cash investment, but
will often generate enough cash flow to still cover expenses when one unit
is vacant. Typically these buildings are never owner occupied. Depending
upon the condition, larger cash reserves may be required for larger repairs
(roofs, boilers, etc).Investment Property2. Because you have four units under one roof, you are beginning to take
advantage of economies of scale, ie: even though you have four units,
there is one front door, one roof, one yard to mow. Maintenance can
typically still be done at residential standards, but may cost more because
of the size. The majority of 4-plexes were built as 4 unit buildings and
are therefore easier to maintain and will have held up better over the
years of being a rental.3. Most 4-plex properties are in older, central neighborhoods. Very
infrequently will you find more than one or two in newer suburbs.4. Owning a 4-plex building can require more time and management than
smaller buildings because they often have common hallways and common
mechanicals that smaller buildings do not have. This additional work should
be off-set by the potential for higher cash flow. Versus being a SLUM LORD!
5. When you are leasing an apartment in these buildings, you will be
competing with larger buildings on rent and amenities. A problem tenant can
also affect the other tenants and turn it into 4 unhappy tenants. So screen
them puppies well! No crying infants, no rocknrollers. No meth labs.Larger Buildings (5 units+)
1. Buildings larger than 4 units will require commercial financing which
will have higher interest rates, typically 5 year loan lengths (on 25-30
year amortizations), and 20% down payment requirements.
2. These buildings can require large cash reserves as they often have
commercial grade mechanicals. Replacing a roof or a boiler may be a
$20-30,000 project.
3. You will again enjoy even better economies of scale if purchase
correctly with larger cash flows.
4. Tenants in larger buildings tend to be less loyal to the
building/landlord and will move more often. You may be working on leasing a
unit almost every month.As you can see, each building style has different pros and cons.
You’re probably saying: “He still hasn’t answered the question!”. If I
had to vote and give my preferred building for a first time investor
(without any other factors), I would recommend a duplex. I believe they
are easier to manage as tenants are more loyal and stay longer, they can be
maintained just like a single family house, they are normally easy to find
and sell, and they will often cash flow and appreciate nicely.Commercial property has some negative factors you should consider:
* You need much more cash up front to purchase a commercial property.
Often this is more than 25% of the purchase price. Sometimes you can get
seller financing, but banks are less willing to loan on a commercial
building if you don't have enough "skin in the game". From a banks
perspective, you are much more likely to walk away from a commercial
property than your home.* There is a normal business cycle in a capitalist country. The economy
goes up and down with regularity and when the economy is down it can be
extremely difficult to find tenants if your tenant goes out of business.
You need a lot of cash to survive economic down turns with commercial
property* Changes in local zoning, traffic patterns or economic growth can have
a very large impact on the rent-ability of a commercial property* Sometimes you might have to tear your building down just to sell the
property. If the new buyer (e.g. McDonald's) wants the property, they are
not going to use your building From a lenders perspective there is a
distinctive difference between 1-4 unit rental properties and multi-unit
investment properties of 5 or more units. Rental property investors of 4
units or less can get real estate investment loans much easier than those
who want to buy larger investment properties. If you live in your 2-4 unit
rental property, a real estate loan is much like a homeowners loan.
Multi-unit properties of 5 or more units have the same loan requirements as
commercial properties. However, due to the number of units available for
rent, vacancies cause much less of a problem than for a commercial
property.On the other hand, many States require that if you have more than 4 rental
units you must have an on-site rental property manager. This will
negatively impact your rental income (unless you want this job!).Multi-unit properties can also be negatively impacted by government
programs. I once owned many multi-unit properties that were 100% occupied.
But the government decided to build a subsidized housing complex nearby and
my vacancy rate sky-rocketed to 75% after that complex opened!Many real estate investors fall in love with duplexes. Duplexes seem to be
ideal for the small investor. In many ways they have lot of admirable
attributes:* You can live in one side of the duplex and so you know exactly how
the tenants are taking care of the property. It's also easy for you to take
care of the property.* Duplexes provide a higher income per square foot of rental space
compared to a single family homes* You can spread your risk by buying duplexes in several locations. If
you own a 100 unit residential property and the location becomes
undesirable you may lose substantial real estate value.On the other hand I find some disadvantages of owning duplexes:
* Like all multi-unit properties, as well as commercial property, your
real estate assets have the least liquidity. Real estate has limited
liquidity, but in these cases the only buyers will be other investors. This
can severely limit your ability to get out of your investment when you need to.* Tenants in multi-unit properties expect you to take care of all
maintenance and typically look at you as a rich landlord. If you don't have
a management company they call you at all hours of the day and night. (I've
been called at 2 am to rid an apartment of bats!) Tenants tend to abuse
multi-family rental units.Aside from showing up with a holster and gun,
what can you do? Bring them occasional gifts, oranges, lemons, candy on
national holidays. Be chummy, parental.
* You probably need to get a property manager to take care of your
duplexes (if you own more than one or two) since you will be responsible
for filling vacancies, fixing the properties up between tenants and dealing
with disputes between tenants.He doesn't get to live there. It's BY CITED
emergency and by TIME SPENT, at X amt per hr.
* Turnover in multi-family units is much higher than either commercial
property or single family homes. You should allocate 10% of your projected
income as vacancy losses. If you have a property manager as well, count on
taking 20% off the annual income.Though many rental property investors love duplexes, there are too many
headaches dealing with tenants for me to consider them as the best real
estate investment.* * * * * * * * * * * * * * * * * * * * * * * * *
Our POSTER is ANITA SANDS HERNANDEZ, Los Angeles Writer, mother of 4 and career Astrologer. Catch up with her websites TRUTHS GOV WILL HIDE & NEVER TELL YOU, also The FUTURE, WHAT'S COMIN' AT YA! FRUGAL LIFE STYLE TIPS, HOW TO SURVIVE the COMING GREAT DEPRESSION, and Secrets of Nature, HOLISTIC, AFFORDABLE HEALING. Also ARTISANRY FOR EXPORT, EARN EUROS....* Anita is at astrology@earthlink.net ). Get a 35$ natal horoscope "my money/future life" reading now + copy horoscope as a Gif file graphic! No smarter, more accurate DESTINY reading out there!
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