Buying an Apartment Building

[Lanthiriel]

Newbie to real estate here who is in the "I don't know what I don't know" stage of contemplating a purchase. Here we go:

The Property

• I am considering purchasing a six-unit apartment building in a relatively rural area of North Carolina (I live in Oregon).
• The purchase price is $300,000.
• 3/6 units are currently rented and the other two are not yet rented due to the seller making updates. I've already talked to the firm that is currently managing the property, and they said that vacancies in the units are rare and that once they have minor updates (paint, new carpet), they will rent for $500/unit. We intend to make additional updates (kitchens, bathrooms, appliances) one at a time as finances allow.

The Financials

• I have about $32,000 in available cash today, could track down about another $10,000 before closing, and could sell my primary residence for a net gain of probably $30,000. (We also have about $200,000 in retirement savings that obviously we don't want to touch and no debt outside of our mortgage. AKA, we aren't destitute, but we aren't flush with cash either.)

Who We Are

• Crazy people who have long been contemplating a move to a rural area (see this thread for context: https://forum.mrmoneymustache.com/ask-a-mustachian/moving-from-hcol-to-lcol-was-it-worth-it/msg2293549/#msg2293549) due to hating our rural lives.
• Our intention would be to live in one unit, make updates to it, and then rent it out and move to another unit as vacancies/finances allow. This would be my husband's full-time job while I search for a full-time position. It's unlikely I would leave my job in Oregon without something lined up in NC.

Questions

• Is this property even financable? It sounds like commercial loans may not go this low and I can't get a residential loan due to too many units.
• If it is financable, is 10% down going to cut it?
• I assume I would want to hold this property in an LLC. Can I set up an LLC in a state I don't live in (yet)? Can I put the property in an LLC after I purchase it, or does it need to be purchased through an LLC?
• What am I missing?

Any suggestions for resources is appreciated. The internet is surprisingly unhelpful (or I'm just not hitting the right search terms).

[waltworks]

Randomly:

-Unless you want to go the private lender route (not cheap) you probably need 25% down.
-You are pretty cash poor to be moving to another state and quitting your jobs.
-The management firm is not a super reliable source of information. Get the owner to give you their tax return (or at least a portion) so you can see what their actual profit/loss is.
-Most landlords would look for a lot more than $3k gross for a 6-unit property that costs $300k, because multi-unit is just generally more expensive/bigger PITA.
-Rents are so low that even in a cheap rural area you are going to have lots of problem tenants, most likely.

I wouldn't touch this with a 10 foot pole in your situation.

-W

[washingtonian]

Boy, where to start! This does not seem like a good idea for many reasons. First, living in an apartment building is a fine idea but why buy the building across country before you move there and know the area well? If you haven't already, talk to everyone you can in that area and get learned up about the rental market. The current property manager may not be sharing the full story.
 
I suggest moving first and renting until you get a feel for whether you truly like it or not, and then you buy. $500 for a unit isn't much, even in a rural area, and there may not be much potential to increase rent in the future. Will that rent produce enough money long term to meet your needs, including repairs to the property? Are you sure you want to be living in the building with 5 units occupied by your tenants? Are you sure they are going to be the sort of people you want to be around all the time? It's easy to say you aren't fancy and get along with all sorts of people, but what if the tenants are trashy, drinking too much, using drugs, etc? You need to consider worst case and be prepared for how you would handle that.

but you didn't really ask for those thoughts so to respond to your questions
With 6 units you would need to get a commercial loan - or a loan from the seller
You would likely need more than 10% down unless you get a loan from the seller, in which case anything is possible
Holding property in an LLC is not necessary, is not always the hassle and expense, and does not always eliminate personal risk. There is plenty of info about this online.

[Papa bear]

With 500/ unit rent and a commercial unit, I would probably look at each this in the 25-30k / unit range. 

As you’re a newbie, start with a 2-4 unit and residential financing.  As you would be owner occupied, you could get away with as low as 3.5% down with FHA loan, but be prepared to pay hefty PMI until 20-25% equity.


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[calimom]

I don't think it's a terrible idea. But it's likely you need a 25% down payment and some cash for renovations/improvements. Is there a scenario where that's workable?

[Lanthiriel]

Thanks for everyone's feedback. You all are right that I just don't have the cash to do this right now. I had a long talk with my husband and while we think this property represents a unique opportunity to get us where we want to be (I didn't mention that this property is in the town my sister and mother live in), the timing just isn't great. We're in good situations with our jobs right now to make a lot of money in the next few years and we probably just need to play the long game.

I did however shoot an email to the sellers agent about the opportunity for seller financing, so the dream is only 95% dead ;)

[waltworks]

we think this property represents a unique opportunity to get us where we want to be

Look, I'll be blunt - I'm pretty confident in saying that this is NOT a good property (at it's current price, at least). It's not a good house-hack, let along a good rental property. At $500 a door, it's going to be a constant PITA to manage. It will probably never cashflow a dime if you're financing it. It likely needs a ton of work from low-end landlords deferring maintenance over the years.

I could go on and on. Multi-family is a different thing than SFH or a duplex, and you guys have zero landlording experience.

It's a unique opportunity to lose money and potentially ruin your life, though.

-W

[clarkfan1979]

I like your overall strategy. However, there are better deals out there.