advice requested for new investor

[future_landlord]

Hi i have decided to embark seriously on investing in real estate here in austin texas, I have a great broker finding me properties and a excellent
lender ready to do creative loans as needed. I have cash on hand to get started.
What i have been looking at are 4-plex buildings, they seem to be small  enough to be managable but big enough to generate good cashflow.
Have you found this to be the case if you have owned 4-plexes before?

My plan is to do several of thse then move onto larger investments such as 50 unit complexes etc...

several of the properties are in rough neighborhoods, and some need some re-habbing but the prices reflect this. anyone have any opinions on these type of properties or expirence managing them?
were these types of deal profitable for you?
am i crazy for looking at those?
any advice on other possibly better ways to get started would be great.

If you were in my shoes and had to start this week what would you look at doing to generate a good income right away and also build equity?

[jeremy]

Future landlord,
Generally speaking, it looks like you're in a position where you're eager to start investing, but you have the luxury of time on your side.  The way i got started with real estate investments was by buying a duplex to live in and rent out the other side.  It was a great way to get started, but as my lease on the house I was renting grew near expiration, I started to get antsy.  I got a decent deal on the duplex, but I paid a good bit more than I'd pay for the same place now.  The best thing you can do is wait for a good deal.  There's plenty of good deals out there if you know how to find them.  Don't pay market value for anything and make sure you put a realistic value on repairs for a fixer upper.  If you're handy with a hammer and nails, I recommend doing as many of the repairs yourself as possible on this first one.  I firmly believe in trying every repair and remodel task at least once.  Then on future investments you'll know which jobs are worth doing yourself and which ones cause too many headaches and take up too much of your time.  This first property will be a learning experience for you.  Treat it as one.

As far as fourplexes are concerned, they're almost always gonna be in a bad neighborhood.  If the neighborhood isn't bad now, it will be.  That's the nature of fourplexes.  Finding a duplex or a fourplex in a single family home neighborhood is always a jewel.  But just remember, bad neighborhoods usually rent quickly.  You won't have model tenants in a bad neighborhood, but you won't see as much vacancy usually.  Another thing about fourplexes and duplexes is that the sellers usually aren't as motivated as some single family home sellers.  As long as a property is turning a profit for the owner, why should he be in a hurry to sell and why should he reduce his price below market value?  Obviously there's exceptions to that rule, especially in the type of economy we've seen in recent years.  But it is definately harder to find a real motivated seller for multi-family homes.  They're out there though.  Just have a little patience.

My recomendation is to check every resource every day.  This includes mls, newspaper, for sale by owner websites, and this website (I have/I want forum).  Know the market and know the neighborhood values before you try to buy anything.  Take your time on this first one.  Also, establish a relationship with a realtor.  A realtor is a good resource to use on your first couple of purchases.  If you've never closed on an investment property, you'll need a realtor on your side until you gain some more experience.

I could go on and on about what you should and should not do, but some of the stuff you just have to learn on your own.  I tried to keep this reply fairly general so that you don't get bogged down in the details right now.

Good luck to you.  

Jeremy

[tedjr]

Jeremy had some good advice. Do not pay retail. Just drive up Slaughter Lane and look at all the for rent signs. There are some there for $180,000 that is supposed to be a short sale where the bank is loosing big bucks. I believe there was a loan of $240,000 at one time. Even at $180,000 the payments will be $1600 per month which is all the  rent you will collect if  all 4 units are leased. Even the mortgage companies will only allow 75% collections when using rental income to evaluate a loan application. I like duplexes myself and am buying a few where the rent is twice the PITI even using hard money financing.  These are in the worst part of town but with hands on management I can make it work. Even if both are vacant my payments will be less than $500 per duplex. When I first started investing there were deals like this all over town even in the newspaper. Harder to find even an OK deal now but they are out there. Good luck and do not hesitate if I can help in any way.

Thank you,

Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas  78737

512-301-9171 home
512-587-6177 mobile

[future_landlord]

Hi, thanks for the advice, I have been looking at some duplexes also, but for my postive cash flow goals i havent seen many that meet them ( yet)
The 4-plexes also seem better from a security point of view in that its less likely that 2 or more units will remain empty for long and 2 will just about pay the mortgage.
Yes i have been looking in area 10 where i live as well as north.
though i think i  am going to continut looking down south closer to home for now.
I have a GREAT agent bought my current house from him and he is helping me find investment properties. I agreee he has been invaluable in many ways.

I have another question, i did some searching on traviscad.org and most of the duplexes seem to have gone down significantly in appraised value over the last 1-2 years(IE its for sale now at 225k and its appraised this year for 145k down from 189k last year), does then mean that there are a good number of landlords who are upside down or nearly, now in relation to the property value?

Also in relation to that, one property I am looking at is appraised way above the asking price, and the appraisal didnt go down at all over the last two years. Its easily the worst i have looked at, borderline warzone neighborhood several empty buildings on same circle, lots of garbage on front lawns, only 1 unit rentable etc.. etc... why would it appraise so high?

Any opinions on property managment companies in the type of properties i am looking at?

I am a little intimidated with the idea of trying to collect rents, ( best way to get them every month without getting robbed while carrying cash going from door to door ) and with the inevitable task of having to evict some gang member from a unit or something similar.

anyways time for bed, been spending too much time on the PC re-searching stuff ;-)

[jeremy]

Property management companies can be a good idea, but they're not cheap.  I just got done researching Austin property management companies and decided it's not worth it for me to hire one right now.  The quotes I received from them ranged from 5% monthly and 60% leasing to 8% & 80%.  So basically 5%-8% of your total monthly rent will go to the management company every month and 60%-80% of your monthly rent will go to the management company whenever there's a vacancy.  When you add that to the fact that you're not pulling in rent that month, it puts a pretty big dent into your profit margin.  There's a duplex next door to one of my duplexes that is managed by a property management company and every time it comes up vacant, it remains vacant for 2-3 months and the rent is some of the lowest in the neighborhood.  So management companies don't always put forth the effort that an owner would.  Another drawback to using a property management company is that you pay for someone else to fix everything.  You could probably work out a deal with them where they'll call you and ask if you'd prefer to fix the problem yourself, but it gets fixed much quicker if the tenant goes straight to you with the problem and you decide who fixes it.  You also get to shop around for the best prices this way.

As far as evictions go, I wouldn't worry so much about it.  If you don't want to evict a gang member, don't rent to one.  Do an extensive credit check and pick your tenants carefully.  I've learned that most people who require eviction are ready for it.  You're not surprising anyone by asking them to leave and they usually feel so bad about the position they've put you in that they just walk away with their heads hung down.  I don't know, maybe I've just been lucky.  I'm evicting someone this week that I never ran a credit check on.  I learned from this tenant that it's worthwhile to lower the rent a bit so that I get more people interested in the property, then pick and choose who moves in.  I sacrificed two months of rent in order to get an extra $30 per month.

Good luck to you.  I hope some of my experiences can help you make some wise decisions.