Author Topic: Multi-Family Conversion questions for newbie  (Read 774 times)

name_was_taken

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Multi-Family Conversion questions for newbie
« on: August 11, 2016, 11:49:53 AM »
Longtime lurker, first time poster.

My wife and I are currently maxing out our retirement accounts. We also bought a foreclosure and are living in it while we fix it up. There are some rental properties in my town (pop ~25000, midwest) that seem like a good deal. In particular, I'm looking at several multi-family 4plex conversions for ~$40000 that gross ~$2000/month. Rental vacancy was 3.44% in 2014 (7.4% 2010-2012 from another website), unemployment is 6%, and 1bd average rent is $495. I haven't looked at them yet, but I don't believe they need any immediate work. I don't believe they are section 8 certified, but I would be open to the idea of going down that path. I would plan on self-managing and doing most of the repairs myself. So, assuming net income is 50% of gross, then cap rate = 30%. Most likely, I would put ~25% down and obtain financing for the rest. I would probably be buying in 1-2 years when I have most of the remodeling on my house done (have to keep DW happy) and have a little more free time.

My questions are:
1. Why might these be priced so low for such a high rental rate? They are not an anomaly, I see quite a few similar. Obviously the tenants would be more low income, higher turnover, older buildings requiring more maintenance, etc, but the neighborhoods aren't dangerous, just lower income.
2. If the property is listed as a multi-family conversion on the assessor website, does that mean it is a legal conversion and I won't have any zoning issues?
3. If we just continue maxing out our retirement accounts, we can be FIRE in ~10 years. If we do real estate, sooner than that, but with the associated headaches. We will most likely move when we FIRE, so I will have to sell the properties or get a property manager. Any thoughts on this? I already listened to Arebelspy's podcast on radicalpersonalfinance about stocks vs real estate. I like the idea of being a landlord and leveraging my construction/handyman experience for a return.
4. What about timing of buying rental properties? Should I buy as soon as I can afford to, or wait until closer to FIRE, then just buy them as an income producing asset, sort of like buying an annuity (except it requires some work). Should I not max out the retirement accounts and put the money toward rentals instead? I don't know if I'll be able to buy them while maxing out the retirement accounts, unless the first one cash flows extremely well with no major repairs. For instance, if I stopped retirement contributions for 1 year, I would have enough money for downpayments on several (probably as many as I would need to have the cash flow cover my annual spending), which should remain cash flow positive while paying down the mortgage. Then I could resume retirement contributions until rental income+4%SWR=annual spending+buffer.

Thanks for your input.
« Last Edit: August 12, 2016, 09:56:22 AM by name_was_taken »

Kroaler

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Re: Multi-Family Conversion questions for newbie
« Reply #1 on: August 15, 2016, 08:57:03 AM »
I have similar questions, I will be curious to see if this works out for you.   There are similar multiplexes in my area for sell.

http://www.zillow.com/homes/for_sale/pmf,pf_pt/apartment_duplex_type/11010027_zpid/34.837125,-82.35446,34.795409,-82.522688_rect/12_zm/