Where to buy a 4 plex? Questions on location, strategy and partnerships

[Christopher Pride]

Wife and I are coming off of a long-term sailing trip after having a kid.  This is an open-book situation where we really are free to decide where we want to be.  The wife works remotely and I have been working on boats for beer money the last couple of years. We've only done one flip in the past couple years, as well, and I am in analysis paralysis of our next move.

I'm looking for work, a property to invest in and to househack a place to live.  I have a lot of real estate experience, have worked in construction and have tools to work on a property myself.

We've lived in Southern and Central California, currently in SW Oregon (went to college, lots of friends here), have family in San Angelo, Texas and near Seattle.  That said, we don't need to be next to family but being somewhat close by has advantages so those places are favored somewhat.

The strategy is to buy, househack a value-add multifamily for 2 years then rinse and repeat until we can build up enough capital to either start developing, move to larger multifamily or the wife wants to start a senior care facility. 

We're interested in a place to live that breaks even with 3 units rented, has some value to add and is relatively clean in an area good for raising kids (no ghetto/near industrial, etc)  We have about 100k of skin.

What are some areas worth focusing on?

Do you have any recommendations for that area (Realtors, lenders, other houshackers)?

Anyone ever partner on a househack?  I am considering it to leverage a much nicer place than what I can afford putting 100k down.

[Josh Stout]

Hey @Christopher Pride

In terms of recommending an area or specific contacts there, I think that has to be a "you" decision. If you want some criteria to pay attention to I would suggest to use your "I'd be down to live/move here" list as a base and then evaluate the market metrics to see if it's a strong investment opportunity. Selecting off investment criteria first could end up moving your family somewhere you don't like...and ignoring investment markers might move you to a dead end area. 

Here are some big picture things to look for in a market..it's focused toward wholesalers but the fundamentals still apply. Don't sleep on the new changes to Fannie's requirement for downpayment on 2-4 unit multi either. It's now 5% and the rental income from other units counts toward the underwriting. Good luck out there and feel free to reach out with any questions!  

Active Market

• High and/or consistent transaction volume. Cash transactions are a good indicator of investor activity.

Population/Market Size

• The smaller the area, the smaller the pool of sellers/buyers. Super dense urban areas are a different animal as well. Populations in the 300-500K range are generally a good sweet spot.
• Roll multiple smaller cities/towns up into one larger “target market” if you need to

Reasonable Property Prices

• Staying at or slightly below median market value increases your odds of success since there are more buyers/sellers
• Higher price points can be very lucrative but typically require more time/money for marketing

Growing or Stable Economy

• Target market should have positive economic growth expectations.
• You may be able to find deals in areas that aren’t doing well, but if you can’t dispo them it won’t matter

Diverse Pool of Buyers

• You’ll mainly be selling to investors, but having a diverse buyer pool gives you more options in terms of exit strategy

Regulatory Environment

• Low regulatory markets can help keep things simple
• Keep in mind that regulations change quickly in many areas, so it's important to keep and eye on your markets for change
• Things to consider; rules regarding holding a license as a wholesaler, probate laws/processes, STR rules, etc

Strong Rental Market

• Think from the end buyers POV. If the rental market is not favorable, you’ll likely see less investor activity and therefore less potential buyers

Availability of Data and Resources

• Access to market data and networking resources can be a huge benefit
• Consider things like; access to county/court data, is it a non disclosure state, etc

Community and Economic Trends

• Understanding local trends/issues can provide crucial insight into your target market
• You can operate virtually, but it’s still important to develop expertise in your target market

*** Good market selection is not a guarantee of success. When done well it simply helps remove or reduce obstacles that could make it harder than it needs to be to win.

[Aaron Nelson]

@Christopher Pride I'm a Realtor in San Angelo. We only have a few quads here but they are mainly in the Southland and Santa Rita areas.  But always happy to brainstorm about our inventory. Just let me know if you want to discuss. 

[Ryan Thomson]

@Christopher Pride I'm guessing you are going to get a lot of people recommending their markets. Which makes sense bc most people specialize in one market. 

Trying to cover all of your mortgage while living in one of the rentable units may work if you are willing to put down a larger down payment (all of that 100k). 

Happy to send you the properties I find in Colorado Springs if that sounds like a fun place for you to live. I think it is. I run the numbers for my clients on new properties I find on and off market and send them out daily. Shoot me a DM if you would like to be on that list. 

[Ryan Thomson]

@Christopher Pride did you land on a place to move yet?!

[Christopher Pride]

Quote from @Ryan Thomson:

@Christopher Pride did you land on a place to move yet?!

Not yet.  This market has us pretty nervous.  Every loan I crunched had us raising rents on the 3 other tenants to get even vaguely close to our numbers.  We're willing to kick a bit in each month but every multifamily we run has us paying close to full rent after insurance, taxes and expenses. Add to it the risk of another covid eviction moratorium and we're looking at a bad investment.

[Anthony Swain]

@Ryan Thomson always has great insight into house hacking, so I'm glad he chimed in here.

@Christopher Pride I just want to throw in my two cents. OF the markets you have considered, have you analyzed the mid-term demand? This could potentially add some cash flow to your house hacking position if you convert 1 or 2 of the units to that strategy.

It sounds like you're handy enough to rehab some units if need be and/or do most minor maintenance, so you can cut down on that % reserve.

Anyway, good luck man! I think if you connect with one of these BP member/agents you'll be heading in the right direction. 

[Rick Albert]

For some reason this just came up on my feed. Hopefully it is not too late. Otherwise, hopefully people can learn from it.

This is a great question to ask, because you have flexibility. I'm a 2x House Hacker in Los Angeles (case study in the BP book The House Hacking Strategy) and I'm going to be direct so that you can incorporate it into your analysis. 

What you are hoping to accomplish is every house hacker's dream: Live for free. However we are in a market with higher interest rates and prices haven't really come down. The experts are saying rates MAY drop middle of the year, but then that just stirs competition and potential rising prices.

If you are looking to put low money down and you can live for free, why wouldn't an investor putting 20%-30% down snatch it up? There needs to be realistic expectations.

I recommend talking to a lender to see what your options are. It sounds like you will have to qualify based on the wife's income, plus the 75% of current/appraised (if vacant) rents. 

I would also consult a CPA because there are going to be a lot of write offs with it not only being a primary residence, but also collecting rental income. The CPA will likely say, "it depends," but your wife could adjust your W2 tax withholdings so you get more of her paycheck every month.

If you are really wanting to live for free with a low down payment, California probably isn't for you. The same applies to Oregon and Seattle. Plus each of these markets have some level of rent control, which will make it difficult to raise rents on existing tenants. I tell all my clients how important it is to buy with vacant units.

If you only have $100K and living for free is an absolute must, then your best bet is to look in markets like Birmingham (I own a triplex there) or others in similar price points. A fourplex might be around $250K, where even if you put little down and you pay the difference, you still have cash left over to buy more rental properties. They may not be in the neighborhoods you want, but keep in mind most multifamily are clumped together. 

Now, if your goal is to build a nice net worth, then I would explore more expensive markets like Southern California, Seattle, etc. With the higher price points, you get higher dollar appreciation, bigger loan buy down, and higher dollar cash flow when raising rents. Buy putting 3.5% down and use the rest towards future investments.

Happy to discuss further if you would like.

[Ryan Thomson]

Quote from @Christopher Pride:

Quote from @Ryan Thomson:

@Christopher Pride did you land on a place to move yet?!

Not yet.  This market has us pretty nervous.  Every loan I crunched had us raising rents on the 3 other tenants to get even vaguely close to our numbers.  We're willing to kick a bit in each month but every multifamily we run has us paying close to full rent after insurance, taxes and expenses. Add to it the risk of another covid eviction moratorium and we're looking at a bad investment.

 That's a win in my mind. Given today's rates. You are paying what you would in rent but also capturing the benefits of owning (Loan paydown, appreciation, tax benefits).