I enjoy teaching investor students and helping them learn about multifamily investing and syndication and all of the benefits it brings. Many people ask, “How do I get started?”
Not everyone is ready to start out buying large apartment complexes for many reasons.
It takes time to learn the right emerging markets. It takes time to learn how to finance big projects. Plus, it takes time to raise money and build relationships with investors and real estate brokers. And don’t forget it takes time to learn how to analyze the deals. That’s a lot!
So when students ask how to get started now, I talk about the advantages of owner-occupied multifamily investing in real estate.
Simply put, owner-occupied multifamily investing real estate is when an investor resides in one part of the property while renting out the other unit(s).
Many new investors in this owner-occupied multifamily investing area start out with duplexes, triplexes or fourplexes.
However, this is not for everyone, as it puts the investor in the position of being a hands-on property manager with the tenants and dealing with all the property management issues such as tenant screening, repairs and even evictions.
Here is a set of pros and cons from fortunebuilders.com that sets out some of the basics of learning the owner-occupied multifamily investing business:
However, there are downsides:
There are very distinct advantages that we must keep in mind in owner-occupied multifamily investing. Not only can you use rental income to offset the amount you pay against the mortgage, there are several tax deductions and depreciation advantages to living in the same property you also rent.
Living in your own rental property, of course, isn’t for everyone. Whether you will gain greater income from an investment property or an owner-occupied rental property ultimately depends on your individual circumstances. You should consult a financial consultant or tax adviser to discuss your bottom line. But here are several of the advantages to owner-occupied income properties to consider:
Michael Blank writes that he thinks duplexes are a great way to start.
“Many real estate entrepreneurs who want to get into multifamily investing are frustrated by how long it can take to do their first deal. It takes a while to educate yourself, learn how to analyze deals, and to raise money. You have to be consistent with contacting brokers and generating deal flow. And you have to make as many offers as possible,” Blank writes.
I want to share with you a story of a duplex that came across my desk in our early years of investing.
It was in an emerging market and it only was selling for $119,000. With just 20% down we bought it with mortgage of $648 a month. Since it was in an emerging market with good rental demand, each unit rented for $1, 100 a month. It was a huge cash flow machine. I wish I had found a fourplex!
My mantra is go for more number of units. Live in one and rent the other three and you live rent-free.
Even though we purchased a lot of single-family homes early on, in many cases the cash flows were just not that good, especially when the tenant left and it would be 100% vacant. Plus, there was the expense of getting it ready for the next tenant, etc.
Once an investor has a clear vision of what he or she is looking for in owner-occupied multifamily investing, the next part is to go out and find it.
Unlike the investment days of old, technology today has granted investors an invaluable resource that provides up-to-date and highly detailed information with the click of a button online.
The majority of today’s research for real estate investment is accomplished using the Internet, with investors taking full advantage of these online super tools. It should be noted that an investor’s due diligence when investing in multifamily properties shouldn’t conclude with online research only, but rather serve as the prelude in the research process.
Your best bet is to find a property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.
Actually, if you are currently renting and thinking about using this technique, perhaps your landlord would be happy to help you out! There are a few variations that can be used, depending on you and your seller. Do they want the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure? Ask for owner financing rather than going through the loan qualification process. You can also approach the seller with a master lease option.
The simplest method is to take over their mortgage payments – called “assuming” the mortgage. Although these loans are rare these days, some lenders still offer assumable loans. You will need to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also try a “subject to” assumption where you merely make payments while the property remains in the seller’s name.
You take over the original mortgage and create a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short period of time – two or three years.
Please leap forward to multifamily as soon as you can!
Move from fourplexes to eightplexes to 20 units and 50 units and then 100 units.
It’s just one transaction with some extra zeros. The rewards are many:
While purchasing a multifamily unit may seem more costly up front, it is surprisingly easier to finance. Why? Because multifamily properties generate significant cash flow on a consistent basis.
When banks see this, they are more willing to provide a loan. This is great news for investors because there is less risk involved with the investment. If one tenant leaves your multifamily property, finding a replacement becomes far less urgent. If your tenants decide to vacate your single-family unit, you won’t earn passive income until a new tenant is found.
Another reason to invest in multifamily properties is because it becomes financially sensible to utilize a property management company. This means, as an investor, you don’t have to deal with day-to-day operations of your rental. You can sit back, relax, and watch your passive income checks roll into your bank account.
Vinney Chopra is the Founder and CEO of Moneil Investment Group and President of Ideal Investments Group. Since coming to the United States more than 40 years ago - with only $7 in his pockets - he has built four successful businesses as well as his passions: a multifamily syndication academy and youth academy. With a bachelor's degree in mechanical engineering, he added a master's degree in business administration in marketing from The George Washington University, shifting his focus to marketing and motivation. He has been a professional fundraising consultant and motivational speaker for more than 35 years and also is a licensed real estate broker in California. Vinney and his wife started their real estate investments in 1983. He currently owns single-family homes and multifamily units in Texas, California, Atlanta, Arizona and India. People often call him “Mr. Enthusiasm” or “Mr. Smiles” for his positive attitude and commitment to bringing great value to everyone whose lives he touches.