Multifamily

I've been a real estate investor for a while, over a decade now, that's how I got into the real estate industry then into being Realtor full time. Going in I knew it could be a rocky industry and it has been. I also knew there were many ways to generate income as an investor: both passive and active. I'll skip the active here because what that really is is a job in itself, not investing and I want to concentrate on investing and one particular example of how well it can work, especially now.  

The example below is based on an actual property that I personally purchased in the last 6 months. I'm using it because I know all the numbers, inside and out, but I won't disclose the property address and I don't keep real estate in my name either. 

The

A few weeks ago I wrote about the progress of a remodel we're doing on Central Phoenix mid-century modern. Check out the before picture.

That remodel has been completed except for a few items. Below are three photos of the kitchen and living space. This is a one bedroom apartment so there is a limit of how many relevent photos I can take, but these will give you a good idea of what is there.

The change is rather dramatic. I like the skylight: I'm big on natural light and the expense and effort were worth it to me, despite what my handy man said.

The kitchen cabinets and fixtures are from Ikea. The stove is one thing we splurged on. A 5 burner gas stove which is awesome and visually striking.

The floor is a laminate from Ikea which I've

Over the last week or so we've been in the grips of another remodel. This time of a one bedroom unit in one of our triplexes. It's a really neat little property, one of my favorites, so it gets a little bit more attention then other multiplexes in our portfolio, though I try to take good care of them all since they take care of me.

A few years ago we remodeled the two bedroom unit, top to bottom, including the bedrooms and bathrooms. The one bedroom is getting a face-lift in the living room and kitchen with the bedroom and bathroom at a later time.

One of the reasons it's getting a facelift is, I like doing this stuff. Not physically, though I can do it all myself, but the design etc. and especially seeing the progress.

Since it's on my mind, the

Depending on the property water bills will very a lot of a little, but many of the factors are in your control. Most 3-4 unit properties will have this basic set up. Owner pays water - sewer and trash. Anytime a tenant does not pay for something it will be subject to overuse and in some cases abuse. That means if the toilet is leaking it will lower your income and increase expenses, but you're unlikely to know about it for a while since the tenant really has no motivation for letting you know, unless you make it easy for them to do it, or if you ask. 

For a basic property with no grass to water, with desert landscaping, expect bills to run at an average of $40 per unit.  This can rise dramatically if you have grass and it can be enven higher if the

I'll say it right out. It makes me nervous when investors come from out of town and want to invest in small multifamily properties like triplexes, fourplexes or even a little larger units with the intent of hiring a management company.

I cringe and almost feel like declining helping them, because I don't want them to get into a situation that most out of town investors get into with hiring management companies.

However it is possible to do this thing, but...  First let me get into the common issues I've seen over and over for many years and I'll follow up with some possible alternatives. 

Common Problems

The common problems you'll notice come across is that the management companies have a different goal then you do and a different way

An indication of the popularity of multifamily properties is the obvious lack of inventory and the activity when decent properties do hit the market. There is no doubt, small multifamily properties are popular with real estate investors. 

The 2-15 unit complexes did get hit pretty bad. There was a lot of speculation, what seems like many years ago in 2003-2007. Many of these properties shot up sky high in price and found willing buyers. Of course, as we all know, most of these came crashing down and went through the arduous short sale or REO process to new owners who often got them at mid 1980's to mid 1990's prices and pretty much instant awesome returns.

The larger complexes in the commercial realm never really hit on bad times. What did happen

I was looking at comparables for a property and came across a fourplex I purchased in 2000 and sold in 2001. This was a repositioning strategy project. That means it was a mis-managed property with bad customers and low for the  market rents. It was easier to do these back then. 

This property has had an interesting history. It was built in 1981 before the 1980's real estate boom in Arizona and the year we moved here from Austria.

• Built in 1981 - not sure of the sale price.

• 1988: Sold for $175,000

• 1991: Went back to the bank in a foreclosure sale for $73,000

• 1992: Purchased for $95,000 from the bank. 

• 2000: Purchased by me for $169,000 - some fix up, new tenants, higher rents.

• 2001: Sold by me for

When buying income multifamily properties most investors prefer to have apartments that are leased. It means instant stability, instant income to cover the expenses and it means less hassle up front with having to market properties for rent, checking tenants out, preparing the units and organizing move in. 

For the most part it's often good to have units leased, but there are cases where it may be better just to have a vacant property.

Note: When buying 2-4 unit properties vacant properties are not worth less then ones with tenants. The value is not as dependent as with large complexes in the commercial realm.

Traditional Sales

When purchasing a property sold traditionally from an owner who has had it a while, many years and is not in

There are different ways to approach income property investing. Some go for the low income high return and high maintenance properties and others prefer low maintenance, good return stable properties and there are many approaches in between. All are good with their own respective pluses and minuses.

The Arcadia area in zip code 85018 has a more premium selection of multifamily properties, it is an in demand area by both renters and home owners and home prices can quickly go well beyond the market average of $86 per square foot the hundreds per square foot. 

A stable income property is even more important for those who are investing with a self directed IRA. Not everyone knows this, buy stocks and commodities are not the only things you can invest

Many real estate investors gloss over some of the most profitable real estate investment properties simply because they don’t understand them. The either hit the single family home route or just go big, but many times some of the most profitable properties are right in the middle. You don’t have to get the 50, 100, or 150 unit properties to start reaping nice return.

Smaller multifamily properties can be very accessible and very profitable, they are essentially everywhere, they are easier to purchase and sell for that matter.

So let’s define small and medium multifamily properties. Small would be 2-4 units and would even fit into the realm of residential financing which is often easier to get then commercial money with lower down payment