Buying a Multi-Unit Building
March 8, 2004 2:27 PM   Subscribe

Any real estate moguls on MetaFilter? I've been trying to think of a business I might be able to start-up for myself. Nothing I've considered so far has struck me as a winner. With interest rates still reasonably low, I've been wondering if buying a small (4 to 6 unit) apartment complex might be worth a look. The internet is full of get rich quick schemes, but so far I don't have the right query to get past all that to bare bones here's what you need to know before you can consider doing it due diligence stuff. Good books, web sites or the voice of experience would all be very welcome.
posted by willnot to Home & Garden (8 answers total)
 
I purused this same question not too long ago, and found this book full of good info. It will help orient you to the various costs and liabilities you'd face, and help you set up some calculations that will make the investment easier to get a grip on.

Then it hit me that whether or not the housing economy is ready to crash, as many say, it's certainly not the bargain basement opportunity of the hour. If you're factoring in property appreciation as part of the potential investment, you might want to consider that the housing market is riding high and full of confidence. It's not necessarily the best thing to invest in. You ought to look around for something that's cooler, more deflated, something that not everyone is high on at the moment, something you can get in on cheap and hope to see appreciate in the coming years.

Although it sounds crazy, the stock market meets this description better than real estate. I don't know Torrance, in particular, but CA's housing economy is riding pretty high in general. Bad time to get in. Great time to get out.

Others will say that as hot as housing is now, it's only going to get hotter. And I'm not saying that the market is ever going to crash necessarily. But it's hard to dispute that real estate is very highly valued right now, which makes it expensive to get in, if not unwise. You might find better return for your money elsewhere.
posted by scarabic at 3:55 PM on March 8, 2004


down here in florida there are a lot of vacation home opportunities. if you have some seed capital, you might look into those...or perhaps time-shares, etc.

i was just at disney world and there was a lot of "disney vacation" properties for sale...they're opening up a new resort or something..if you can invest in those, you'll probably get an incredible rate of return.

okay, some second-hand anecdotes:

1. my friend's parents own a condo in the naples area. they bought for 500K, just sold for over a million. it also was nice that they could rent it out when they weren't down vacationing. it rented for like, 1500 a week, even though it only cost 3000 a month.

2. my brother buys medium-priced brownstones in trendy areas of philadelphia. he soups them up like crazy and resells them. he buys them for about 300K, puts about 300K into them, sells them for 1.3M.

so, i wouldn't say that the real estate market is over valued...i would say that some areas are high-priced, and you might not want to invest there, but there are always developing areas, and you can get in at the right time and make a fortune.
posted by taumeson at 4:11 PM on March 8, 2004


Managing rentals is a royal pain in the butt. I worked in a rental management office for awhile. My husband is a realtor who also used to manage rentals.

Nothing like seeing a house that rented for $1000 a month totally trashed and filled with German Shepherd poop all the way down to the carpet padding. And then trying to locate the tenants to get the overdue rent and the damage money out of them.

If you do decide to own and manage some apartments make sure you have a reliable handyman available, and also know who to deal with re more complicated types of repairs. (It helps if the handyman doesn't drink. It helps more if they actually know how to do repairs the right way.)
posted by konolia at 4:57 PM on March 8, 2004


More second-hand anecdotes (my mother owns two buildings, one 6-unit and one 14-unit):

1. Most of the profits arrive at the point of sale, not during the period when you actually own the building. If anything, you may spend a fair amount of time running at a loss or only breaking even, especially since you'll often need to plow much of the property's income right back into it (repairs, updates, etc.).

2. Second the handyman. The handyman is your friend. For other services, try not to be penny-wise, pound-foolish.

3. Prepare to be on-call 24/7, unless you're willing to shell out for a management company.

4. Research the location thoroughly before investing.

5. You should be able to find a local apartment owners' association. Such associations will come in particularly handy when it's time to run credit checks.

6. Upkeep, upkeep, upkeep. Keep the exteriors painted and well-lit; clean up any garbage or graffiti ASAP; update the interiors on a regular basis with (at a minimum) new carpeting & fresh paint after each vacancy. (See #1.)
posted by thomas j wise at 8:21 PM on March 8, 2004


Thanks for the helpful feedback everybody. I was looking leverage some of my current home equity towards sustained extra income more for an opportunity to build additional equity, so it sounds like a bad fit for me right now.

I guess I need to go back to the drawing board and try to think of something else.
posted by willnot at 10:21 PM on March 8, 2004


Real estate is a poor investment because it lacks diversification. You should buy a home (or property) because you live there (or otherwise will use it personally), not to earn money.

REITs (real estate investment trusts) are much better investments. There are many property management companies which are publicly traded, or you can invest in one of the mutual funds that just do real estate.
posted by calwatch at 12:09 AM on March 9, 2004


Consider laundromats, car washes, and dry cleaners, if you're looking to build equity and generate cash flow.

And Calwatch's point, while true, ignores the interest-rate-sensitivity of REITS. 1994 and 1999 were tough years for some REITs. 1998 was a doozy as Paired-share REITS lost their tax advantages. They carry plenty of risk.
posted by trharlan at 8:29 AM on March 9, 2004


Not as much as owning one or two properties, which was my point. A good real estate fund should be about as volatile as a growth stock fund.
posted by calwatch at 10:42 PM on March 9, 2004


« Older Evolutionary Advantages   |   Niagra Falls Newer »
This thread is closed to new comments.