Investing in Real Estate 4 - Small (2-4 units) Apartment Building
What this investment is: Purchase of duplex, triplex or quadplex to be rented to tenants, usually for 6-12 month terms. Usually what the rental home / condo landlords graduate to. In most markets they cost a little more than a rental home, but are much more likely to cash flow on the average month. Less cash flow risk; if one unit is empty you have other tenants that still help you with the mortgage payment so it doesn't all come out of your pocket. Many owners will start to delegate some of the property management tasks to an on-site assistant (typically the most responsible tenant), such as yard maintenance and showing empty units. The financing process is only slightly more involved than a residential loan. Relatively small down payment requirements make it affordable. The purchase process is also very similar to purchasing a home. It's a good way for beginners to get started.
Equity needed: 20% - 30% down would be typical.
Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.
Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.
Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. If you get a property manager, you'll be able to figure it out easily on this small of a scale. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.
Next week, we'll continue to explore small apartment buildings in more detail!