Long story short, I am considering buying a small apartment building as an investment property. The building houses 6 units (3 single BR's, 3 two BR's), and is located in what I believe is a pretty good location (Portsmouth NH). The list price is just under $380,000, so this is obviously not a "luxury" property by any streatch of the imagination. I estimate that ~$50,000 worth of renovations would be needed to place all the apartments in rentable condition. Presently, all units are unrented due to the need for said renovations.
Based on discussions with several real estate agents, a subjective evaluation of the property, and an analysis of the rental markets in and around Portsmouth, it is my opinion that this building presents an interesting income opportunity. Indeed, with the amount I could put down and an expected rent of $700-900/month per apartment, I expect that I could gross (not including expenses) ~$2000-3400/month. Possibly more.
That being said, I have never been a landlord before, much less a landlord for a multiunit building. Does anyone hear have any experience managing/owning this type of property? Any war stories/words of advice? Would it be better to try and manage the property on my own, or hire a management company? Am I crazy for considering this?
I am a ten year landlord and real estate investor. Based upon what you have said, I would say walk away from the investment. But if you insist, here are my suggestions.
1) You need to do a lot of research on apartment rental rates for YOUR SPECIFIC AREA and YOUR SPECIFIC BUILDING type. I can use a service in Texas,
http://www.alnsystems.com/ , that collects this information for me. If you cannot find a similar service in your area, contact your local real estate investor associations or even your local realtors. Drive around and call similar apartments and find out what they rent for. Above all, KNOW your rental market backwards and forwards before you ever buy anything. You need good rental data to figure your income reliably, or nothing else you do will matter when figuring bottom line.
2) Call the City Development office and see what projects are going on in your area. Try to find out if they are putting in a new park, road, school, or retail development that may raise rents in your area. This puts money in your pocket without you having to do anything. The clerks in the office are often very helpful to have as friends, and many times they will put all developments online for you as well. You can use the city development map to find areas to invest in, rather than finding a specific deal and trying to make that one work against the local environmental variables. This step is called developing your AREA OF EXPERTISE. Don't ever invest in real estate unless you know your area backwards and forwards.
3) Since this is commercial (more than 4 units), you figure price by taking EXISTING net income and dividing by cap rate for that property type. Price is NOT calculated the same as in residential real estate based on comparable sales. Since your building sits unrented, you either need good data or you lowball the offer to give yourself lots of cushion.
The fact it has been sitting so long tells me the serious investors don't feel as though it is worth that price. They don't have rental and expense data to calculate a Net Income, so they skipped it or made lowball offers that did not get accepted by the seller.
Ask the real estate broker for past financials. The previous owner should have books and tax returns to show you what the property used to make in past years, even if it is vacant now.
4) Get a mentor. Again, find a local investment club. They will have purchased similar buildings in your area, will have comparable financial data, and can give you a ballpark answer whether this is a good investment or not. That is better than the data you have now, which is nothing other than a randomly made-up sales price.
Otherwise, you are taking ALL the risk in the decisions. Might as well buy stocks and hope they go up because you have about as much chance, without all the hassles in apartment ownership.
5) Read this book or similar before you spend any of your money:
http://www.amazon.com/Real-Book-Esta...3508113&sr=8-4
6) As far as managing, this is a 6 unit so you will do it yourself. It makes no financial sense to hire someone full time. And the only people you can get part time will not run your building well, they will treat it like a job at McDonalds. If you hire an 'independent' propety manager that has other units they manage for owners, they will not treat your property as an investment, as you would, but as a means to a paycheck. In other words, they will not discipline your tenants or take care of it like an investment because they will not have to deal with the messes they created when you fire them.
At the end of the day, I am telling you to get educated on all aspects of property management, then buy stuff. You are contemplating learning on the job, which is what breaks most investors and loses fortunes. That is an extremely risky scenario.
Good deals are always there. When you know what you are looking for, they pop out at you. You have no idea right now what you have your hands on.
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