I really want to buy a multifamily home....

[i_have_so_much_to_learn]

I really want to buy a multifamily home.... but I'm afraid of dipping my toes in. I've been evaluating properties for over 5 years with nothing meeting my cap rate expectations. Prices only seem to go up?!

Have prices gone so high that acceptable cap rates are below 3% on average, or am I doing something wrong?

(my ultimate goals are increasing my cash flow)

Thanks for the advice,
- looking for a house and can't commit to buying one

[Papa bear]

Now is not a great time to get into rentals for the cash flow.  Yields are way down and deals are hard to come by.  Keep looking though! Things are most likely to change sometime.  No crystal ball though, good luck on timing!


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[i_have_so_much_to_learn]

Now is not a great time to get into rentals for the cash flow.  Yields are way down and deals are hard to come by.  Keep looking though! Things are most likely to change sometime.  No crystal ball though, good luck on timing!


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Thanks so much for your support - seems to solidify my understanding that it's not me, it's the market. But the FOMO definitely kicks in. Other people are buying, why can't/shouldn't I? I had a change to buy a few years ago and thought the same thing - but yields are even lower today than they were then.

[PMJL34]

OP,

What area are you looking in?

[Archipelago]

The market is difficult right now. You may need to start looking off market. Good properties are around, but not many owners are inclined to part with them. I'll save this topic and share some knowledge on direct mail campaigns. I've had the best luck with off market deals. Too many cash investors driving up the prices now for everyone else.

[SndcxxJ]

Now is not a great time to get into rentals for the cash flow.  Yields are way down and deals are hard to come by.  Keep looking though! Things are most likely to change sometime.  No crystal ball though, good luck on timing!


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Thanks so much for your support - seems to solidify my understanding that it's not me, it's the market. But the FOMO definitely kicks in. Other people are buying, why can't/shouldn't I? I had a change to buy a few years ago and thought the same thing - but yields are even lower today than they were then.

Just because others are buying doesn't mean you should.  Each person should evaluate their own needs, expectations, and abilities.  I have come up with three new properties in the last year, none of which I was looking for.
One property I foreclosed on (not a covid protected property), one was a property next door that had features for me that go beyond typical returns for the property on the regular market, and one was just because a friend had a boatload of money to invest and I have a system for property ownership, management, and maintenance.
Simultaneously, I have recommended to close friends not to get involved over the same period of time.  Despite what might happen in the market this year it would be prudent for me to pick up another couple properties this year to keep up tax losses. 
All this being said, I would not just make a blanket statement that it is or is not a good time to buy.  The prices are high, but interest rates are low, depending on what and where you are buying some properties are in high demand but do not have a path forward of creating more, while other types of properties are being created in excess of demand.  For the right scenario I could say this is a fine time to buy, or possibly a terrible time, so don't just do what others do.  Think about what is best for your particular situation in the long and short term and go from there.

[i_have_so_much_to_learn]

OP,

What area are you looking in?

California, Texas, Mass, RI, NH... And open to others

[i_have_so_much_to_learn]

The market is difficult right now. You may need to start looking off market. Good properties are around, but not many owners are inclined to part with them. I'll save this topic and share some knowledge on direct mail campaigns. I've had the best luck with off market deals. Too many cash investors driving up the prices now for everyone else.

How do you find an off market deal?

[i_have_so_much_to_learn]

Now is not a great time to get into rentals for the cash flow.  Yields are way down and deals are hard to come by.  Keep looking though! Things are most likely to change sometime.  No crystal ball though, good luck on timing!


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Thanks so much for your support - seems to solidify my understanding that it's not me, it's the market. But the FOMO definitely kicks in. Other people are buying, why can't/shouldn't I? I had a change to buy a few years ago and thought the same thing - but yields are even lower today than they were then.

Just because others are buying doesn't mean you should.  Each person should evaluate their own needs, expectations, and abilities.  I have come up with three new properties in the last year, none of which I was looking for.
One property I foreclosed on (not a covid protected property), one was a property next door that had features for me that go beyond typical returns for the property on the regular market, and one was just because a friend had a boatload of money to invest and I have a system for property ownership, management, and maintenance.
Simultaneously, I have recommended to close friends not to get involved over the same period of time.  Despite what might happen in the market this year it would be prudent for me to pick up another couple properties this year to keep up tax losses. 
All this being said, I would not just make a blanket statement that it is or is not a good time to buy.  The prices are high, but interest rates are low, depending on what and where you are buying some properties are in high demand but do not have a path forward of creating more, while other types of properties are being created in excess of demand.  For the right scenario I could say this is a fine time to buy, or possibly a terrible time, so don't just do what others do.  Think about what is best for your particular situation in the long and short term and go from there.

Thank you for the wise and sagacious reply. I guess what I really want is cash flow and to increase my assets, but I don't want to lower my standards to do that. Feels weird because I really used to feel like RE was the key to success.

[Jon Bon]

The market is difficult right now. You may need to start looking off market. Good properties are around, but not many owners are inclined to part with them. I'll save this topic and share some knowledge on direct mail campaigns. I've had the best luck with off market deals. Too many cash investors driving up the prices now for everyone else.

How do you find an off market deal?

You don't.

There is an ARMY of non-native English speakers calling me daily. I hang up on every single one. These people generally try to rip off old people who do not realize the value of the home they have. They bought it 30 years ago and a 10% gain on that price sounds good to them!

Those people are scum.  (sorry for the aggressive answer, I deal with them a lot!)

[i_have_so_much_to_learn]

The market is difficult right now. You may need to start looking off market. Good properties are around, but not many owners are inclined to part with them. I'll save this topic and share some knowledge on direct mail campaigns. I've had the best luck with off market deals. Too many cash investors driving up the prices now for everyone else.

How do you find an off market deal?

You don't.

There is an ARMY of non-native English speakers calling me daily. I hang up on every single one. These people generally try to rip off old people who do not realize the value of the home they have. They bought it 30 years ago and a 10% gain on that price sounds good to them!

Those people are scum.  (sorry for the aggressive answer, I deal with them a lot!)

I'm a non native English speaker - do you think they're hiring? 😅🤣

[Jon Bon]

Now is not a great time to get into rentals for the cash flow.  Yields are way down and deals are hard to come by.  Keep looking though! Things are most likely to change sometime.  No crystal ball though, good luck on timing!


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Thanks so much for your support - seems to solidify my understanding that it's not me, it's the market. But the FOMO definitely kicks in. Other people are buying, why can't/shouldn't I? I had a change to buy a few years ago and thought the same thing - but yields are even lower today than they were then.

Just because others are buying doesn't mean you should.  Each person should evaluate their own needs, expectations, and abilities.  I have come up with three new properties in the last year, none of which I was looking for.
One property I foreclosed on (not a covid protected property), one was a property next door that had features for me that go beyond typical returns for the property on the regular market, and one was just because a friend had a boatload of money to invest and I have a system for property ownership, management, and maintenance.
Simultaneously, I have recommended to close friends not to get involved over the same period of time.  Despite what might happen in the market this year it would be prudent for me to pick up another couple properties this year to keep up tax losses. 
All this being said, I would not just make a blanket statement that it is or is not a good time to buy.  The prices are high, but interest rates are low, depending on what and where you are buying some properties are in high demand but do not have a path forward of creating more, while other types of properties are being created in excess of demand.  For the right scenario I could say this is a fine time to buy, or possibly a terrible time, so don't just do what others do.  Think about what is best for your particular situation in the long and short term and go from there.

Thank you for the wise and sagacious reply. I guess what I really want is cash flow and to increase my assets, but I don't want to lower my standards to do that. Feels weird because I really used to feel like RE was the key to success.

"Be greedy when others are fearful, be fearful when others are greedy" -WB

If you buy RE in Cali right now you are basically going to be a RE speculator right? The ratios are terrible and rents likely don't even cover all your expenses. You will not make any money from rents and all your "gains" will be from unrealized capital gains. I know it sucks to hear, and it is completely not fair. I bought all my stuff for cheap in 2009-2014 when it was very undervalued. I am now rich (on paper) due to this. I got lucky and timed the market correctly (through no skill on my part).

Fight the urge to get in on the mania, look up some of the classic bubbles in the past. Also think to yourself; "Do I want to be featured on MSNBC for being underwater on a house" Because at some point that is going to happen again. When no idea. But the gains in the hot markets have been awesome/terrifying depending on your perspective.

[Jon Bon]

The market is difficult right now. You may need to start looking off market. Good properties are around, but not many owners are inclined to part with them. I'll save this topic and share some knowledge on direct mail campaigns. I've had the best luck with off market deals. Too many cash investors driving up the prices now for everyone else.

How do you find an off market deal?

You don't.

There is an ARMY of non-native English speakers calling me daily. I hang up on every single one. These people generally try to rip off old people who do not realize the value of the home they have. They bought it 30 years ago and a 10% gain on that price sounds good to them!

Those people are scum.  (sorry for the aggressive answer, I deal with them a lot!)

I'm a non native English speaker - do you think they're hiring? 😅🤣

Probably, they might only pay $1 an hour....

[Papa bear]

It’s not impossible to find off market deals.  And while it has become immensely harder with all the robo-calls, you can still do some legwork.

You probably won’t get anywhere with mass solicitation at this point, but targeted letters or calls may work.  This all takes active time and is like having a sales job. 

You can also start networking.  Get into local real estate groups, meet with other investors, get to know a few realtors that you see list the multi family places where you’re looking.  Maybe one of them remembers you enough to tell you about a place they want to sell or something that will be coming soon.  Might give you a leg up. 


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[PMJL34]

OP,

If you are expecting to find a 1% home to fall in your lap from redfin/zillow, then you are wasting your time. It ain't happening in your lifetime, especially in the bay area or any other desirable area for that matter.

It sounds like you are flexible looking out of state, but I wouldn't recommend it especially as a first timer unless you have some insider info or a great partner.

I recently purchased in the bay area in 2021. I'm a firm believer in real estate so I always tell everyone to buy when you are ready and when you can afford it. Even in this crazy environment, there are a select few homes that can be positive cashflow (just not 1%), but it may take you 6-12 months to find one.  You have to understand that anything great is gone, so you do have to set your expectations appropriately.

In this environment, your best bet is to add value to whatever home you purchase. Don't think it's going to pencil out as is. If it did, you wouldn't be able to get your hands on it anyways. Can you convert an attic, basement, add a bedroom or an ADU? Get creative. 

Best of luck!

[i_have_so_much_to_learn]

OP,

If you are expecting to find a 1% home to fall in your lap from redfin/zillow, then you are wasting your time. It ain't happening in your lifetime, especially in the bay area or any other desirable area for that matter.

It sounds like you are flexible looking out of state, but I wouldn't recommend it especially as a first timer unless you have some insider info or a great partner.

I recently purchased in the bay area in 2021. I'm a firm believer in real estate so I always tell everyone to buy when you are ready and when you can afford it. Even in this crazy environment, there are a select few homes that can be positive cashflow (just not 1%), but it may take you 6-12 months to find one.  You have to understand that anything great is gone, so you do have to set your expectations appropriately.

In this environment, your best bet is to add value to whatever home you purchase. Don't think it's going to pencil out as is. If it did, you wouldn't be able to get your hands on it anyways. Can you convert an attic, basement, add a bedroom or an ADU? Get creative. 

Best of luck!

Thank you so much for your refreshingly honest and blunt response. I love it!

Might I ask what you mean by 1%?

[SndcxxJ]

Off market is possible, but not easy, and could result in a big waste of time.
I am no pro at off market deals but most off market deals I have been in on were direct contact with someone I know.  For example, the house I live in now was a neighboring property to one I had and knew the owner for many years.  She was old and passed away and I happen to drive by while the wake was happening and I learned of the situation.
I subsequently told the heirs that I was interested in the house (and the other units that I knew she owned).  The benefit to them was a package sale with no broker fees, the benefit to me was that I didn't have to compete for the property.  I paid market price for these properties.
I have let pretty much everyone I know and every neighbor I might interact with that I am a buyer.  Some of those properties might come my way, some might not.  Some the seller will want more than I'm willing to pay, some I might get at a deal.
If you widen you circle of people you know, and make yourself known as a buyer off market deals occur.  Some people go "driving for dollars" and other tactics to find properties that could be bought for below market rate, focusing on exterior condition to find potentially desperate sellers. 
Lastly, through normal course of business I have come across many real estate agents.  Every single one of them know that I am a buyer and I often get a call from them before their listing goes to market.  They want to serve both sides of the transaction, which I am ok with but isn't necessarily for a newer investor.  In those transactions I wouldn't necessarily be getting a deal below market rate, but I might have a better position in negotiating than in the open market.

[Papa bear]

OP,

If you are expecting to find a 1% home to fall in your lap from redfin/zillow, then you are wasting your time. It ain't happening in your lifetime, especially in the bay area or any other desirable area for that matter.

It sounds like you are flexible looking out of state, but I wouldn't recommend it especially as a first timer unless you have some insider info or a great partner.

I recently purchased in the bay area in 2021. I'm a firm believer in real estate so I always tell everyone to buy when you are ready and when you can afford it. Even in this crazy environment, there are a select few homes that can be positive cashflow (just not 1%), but it may take you 6-12 months to find one.  You have to understand that anything great is gone, so you do have to set your expectations appropriately.

In this environment, your best bet is to add value to whatever home you purchase. Don't think it's going to pencil out as is. If it did, you wouldn't be able to get your hands on it anyways. Can you convert an attic, basement, add a bedroom or an ADU? Get creative. 

Best of luck!

Thank you so much for your refreshingly honest and blunt response. I love it!

Might I ask what you mean by 1%?

The 1% “rule” is a back of napkin calculation when valuing an investment property, where its monthly rents are equal to 1% of the price of the property.

It’s a quick and dirty way to gauge potential cash flow on an investment property.  If a property meets the “rule” you have a very high chance that the investment will be positive cash flow over and above PITI, maintenance, capital expenditures, and management. 

Local differences can effect this “rule” in your area, such as high or low property taxes, HOA’s, business fees, compliance costs, etc. 

This rule used to be the 2% rule way back in 2008-2011 and there are some who will buy properties in the .4% - .6% range in today’s market and hope for continued appreciation.


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[i_have_so_much_to_learn]

OP,

If you are expecting to find a 1% home to fall in your lap from redfin/zillow, then you are wasting your time. It ain't happening in your lifetime, especially in the bay area or any other desirable area for that matter.

It sounds like you are flexible looking out of state, but I wouldn't recommend it especially as a first timer unless you have some insider info or a great partner.

I recently purchased in the bay area in 2021. I'm a firm believer in real estate so I always tell everyone to buy when you are ready and when you can afford it. Even in this crazy environment, there are a select few homes that can be positive cashflow (just not 1%), but it may take you 6-12 months to find one.  You have to understand that anything great is gone, so you do have to set your expectations appropriately.

In this environment, your best bet is to add value to whatever home you purchase. Don't think it's going to pencil out as is. If it did, you wouldn't be able to get your hands on it anyways. Can you convert an attic, basement, add a bedroom or an ADU? Get creative. 

Best of luck!

Thank you so much for your refreshingly honest and blunt response. I love it!

Might I ask what you mean by 1%?

The 1% “rule” is a back of napkin calculation when valuing an investment property, where its monthly rents are equal to 1% of the price of the property.

It’s a quick and dirty way to gauge potential cash flow on an investment property.  If a property meets the “rule” you have a very high chance that the investment will be positive cash flow over and above PITI, maintenance, capital expenditures, and management. 

Local differences can effect this “rule” in your area, such as high or low property taxes, HOA’s, business fees, compliance costs, etc. 

This rule used to be the 2% rule way back in 2008-2011 and there are some who will buy properties in the .4% - .6% range in today’s market and hope for continued appreciation.


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Ahh, I've heard of this but in a different way. I've heard the property should generate 10% of the value annually in rent. 1% yields a slightly higher rent. Makes sense. Thank you very much for explaining.

[Dee_the_third]

Yeah, don't let FOMO push you to buying before you're ready and the market is right. You want to start small. Small # of doors, small outlay as a fraction of the cash you have available. You need an exit plan in case you hate it. Being a landlord isn't for everyone.

Buying in a rapidly appreciating area is generally not a good formula for cash flow. It works out here in the Midwest though.

[i_have_so_much_to_learn]

So - This thread on reddit recently popped up... (https://www.reddit.com/r/realestateinvesting/comments/mzby2e/ive_been_evaluating_re_for_56_years_without/) hmm... i wonder who could've posted it.

the feedback here was really interesting too. people range from "this isn't right for you, get out now." to "just buy one even if you lose money!"

thank you all for your feedback and ideas. I'm still super torn. I guess asking for feedback from too many people is confusing in and of itself. I'd like to acquire a mentor to help me with this - i think that's my next major action item.

[Papa bear]

Well, expect the Reddit real estate investing board to push you toward real estate.  When you’re a hammer, every problem is a nail.  Of course they like real estate!

Ask the question on a retire early board, you’re going to get different response. Put your money in index funds, sit back, watch it grow, no work involved. It works.  It might be the better option in today’s environment. And we have a lot of real estate people on these forums.  I’m not sure anyone here has been thrilled with the idea of buying this past year. It’s tough!

Now, I’m a pretty conservative real estate investor.  I don’t go after C area properties.  I’m not interested in section 8. I don’t want 20 doors at 550/month rent.  Do you know those kinds of tenants?? I don’t want to deal with that.  No thanks.

Reading your post again, and the reddit thread, you want to be a passive, hands off, out of market investor.  You’re probably going to need a handful of places and pay a manager to make it worthwhile.  Portfolio sales of high yield properties exist.  I get sent emails and texts all the time of places that are cheap, but rented.  Maybe you should jump at one of those.  I had one sent to me, portfolio sale, 22 doors on like 9 units.  Right around 265k TOTAL for those places.   Gross rents over 10k/month.  On paper? This kills it! Maybe that is what you should go for.  It’s not my cup of tea.  There’s going to be a lot of deferred maintenance, headache tenants, etc.  but if you pass that all off and outsource everything, that might work. 

I’m not sure how I got on some of these geographical lists, but Youngstown, OH and Memphis, TN are two that I get a lot with high yield investments.  Don’t ask me about the areas though, I don’t invest there. 


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[i_have_so_much_to_learn]

Well, expect the Reddit real estate investing board to push you toward real estate.  When you’re a hammer, every problem is a nail.  Of course they like real estate!

Ask the question on a retire early board, you’re going to get different response. Put your money in index funds, sit back, watch it grow, no work involved. It works.  It might be the better option in today’s environment. And we have a lot of real estate people on these forums.  I’m not sure anyone here has been thrilled with the idea of buying this past year. It’s tough!

Now, I’m a pretty conservative real estate investor.  I don’t go after C area properties.  I’m not interested in section 8. I don’t want 20 doors at 550/month rent.  Do you know those kinds of tenants?? I don’t want to deal with that.  No thanks.

Reading your post again, and the reddit thread, you want to be a passive, hands off, out of market investor.  You’re probably going to need a handful of places and pay a manager to make it worthwhile.  Portfolio sales of high yield properties exist.  I get sent emails and texts all the time of places that are cheap, but rented.  Maybe you should jump at one of those.  I had one sent to me, portfolio sale, 22 doors on like 9 units.  Right around 265k TOTAL for those places.   Gross rents over 10k/month.  On paper? This kills it! Maybe that is what you should go for.  It’s not my cup of tea.  There’s going to be a lot of deferred maintenance, headache tenants, etc.  but if you pass that all off and outsource everything, that might work. 

I’m not sure how I got on some of these geographical lists, but Youngstown, OH and Memphis, TN are two that I get a lot with high yield investments.  Don’t ask me about the areas though, I don’t invest there. 


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Thank you so much for your well thought out response. Your "hammer" comment is especially poignant.

[calimom]

For clarity, when you say 'multifamily home' what do you mean? Duplex, triplex, apartment complex or SFH with an ADU in the backyard? Do you want to live in one unit and rent out the others,  + any spare bedrooms? I live in CA, and have a couple of rentals with partners. We do most of the work ourselves. And we're not in a very tony part of the state. But we've done OK in terms of income and appreciation.