Author Topic: Considering multifamily purchase--questions  (Read 748 times)

Monerexia

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Considering multifamily purchase--questions
« on: September 02, 2019, 07:00:16 PM »
My main reservations are going in inexperienced and dealing with people who A--have been doing this much longer than I and B--will do everything they can to get my money. Given the high dollar amount to buy in and the costs of mistakes, how do I overcome the asymmetrical information problem. I mean, it's not like I can do 50 practice runs and get my legs underneath me. If the first deal is a bad one (and the first one is the most likely to be a bad one) the costs are stunningly high. How to frame and work through this conundrum?

edited to add: Things I have considered:

Buying in way under my max so nut is easy to cover
Diversifying in lower income areas so risk is spread
Finding a partner--but then again being inexperienced who do you trust--everybody is on their own side.

« Last Edit: September 02, 2019, 07:03:22 PM by Monerexia »

Monerexia

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Re: Considering multifamily purchase--questions
« Reply #1 on: September 08, 2019, 04:05:31 PM »
My main reservations are going in inexperienced and dealing with people who A--have been doing this much longer than I and B--will do everything they can to get my money. Given the high dollar amount to buy in and the costs of mistakes, how do I overcome the asymmetrical information problem. I mean, it's not like I can do 50 practice runs and get my legs underneath me. If the first deal is a bad one (and the first one is the most likely to be a bad one) the costs are stunningly high. How to frame and work through this conundrum?

edited to add: Things I have considered:

Buying in way under my max so nut is easy to cover
Diversifying in lower income areas so risk is spread
Finding a partner--but then again being inexperienced who do you trust--everybody is on their own side.

Well I guess since nobody else has taken a swing at this I will. Okay so first, the fact that you are even asking this question tells me that you are not deep enough into the subject matter to ask answerable questions. It's like looking at the calculus book and asking someone how to do calculus. You need to open the book. Familiarize yourself with the subject matter, beginning with chapter one, in detail. Get your mind around basic concepts of these transactions and then do some practice ones. You can also pay someone to take you through the broad outlines and some basic things to look out for. As you are doing this, familiarize yourself with a geographical area you'd like to purchase in and run numbers over and over until understanding develops. As for people doing "everything they can" to get your money--just look at the transaction and see if it makes sense. Nobody will force you to make a bad deal. Hope this helps!

Papa bear

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Re: Considering multifamily purchase--questions
« Reply #2 on: September 08, 2019, 05:00:12 PM »
Ok.  Whoa.  Not really very answerable questions here. 

First.  What kind of multi family? 2 unit? Or apartments? Or what?

How much are you looking to spend? And what % of your investable assets is this?

Have you ever bought any real estate previously? Are you employed? Any income at all? Do you plan on getting a loan?

Have you heard of the 1% rule?  Know this.  How about the 50% rule? Know that one too.

Are you handy? Do you DIY projects? Do you want to manage properties?  Do you want a side gig or pay for management? 

Realistically, you are buying an asset that produces an income.  You need to know your cash flows, expected expenses, capital expenditures, and then use a multiple to figure out the value of the asset.  Pay for the asset at that price or less than that price. 

Worst case? You sell the asset again. Maybe take a loss on transaction costs and capital expenditures, but itís doubtful you would ever have a total loss. 

Plus read a lot. Read the case studies here. Go on BiggerPockets and check out some of the basics. 






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Archipelago

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Re: Considering multifamily purchase--questions
« Reply #3 on: September 08, 2019, 08:03:27 PM »
Hey, welcome to the MMM forums.

I'll echo what Papa bear has said. Feel free to post deals on here and have them torn apart. I'm a fairly experienced RE investor and post hypothetical deals periodically on here just so I can make sure they're bulletproof.

In my journal I discuss house hacking a multi family property, and I'll continue to advocate for that particular strategy.