I'm just starting to invest. Where should I start, duplexes or a thirteen unit complex?

In Buying Property - Asked by frank o. - Jun 17, 2009
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Answer(s)

keith d.
Appraiser
Bellevue, WA

13 unit

Jun 17, 2009
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hagop a.
Broker/Agent
Gardena, CA

if you can afford 13 unit complex, then go for that.

Jun 17, 2009
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Paul S.
Broker/Agent
Glendora, CA

Depends. 13 units will be much harder to finance, require more down, the interest rate will be higher and the term shorter than on 1-4 units (conforming). Don't fixate on number of units but rather on how a given property performs in relationship to another you might be interested in. Start with cap rate to see how each property relates to the other. Keep in mind cap is a one year look at the relationship of the price to the net operating income (NOI). Higher cap means you are paying less for a cash flow than you are on a property that has a lower cap. NOI does not include debt. In any given area there will be a "going" cap rate. You will most likely find the sold properties will have a higher cap rate than the active ones do (reality and expectations rarely meet). Remember that cap is merely a reflection of the income to the price and usually the solds reflect a lower price relative to the income. The best deals sell first. Once you discover where something is priced, relative to other properties, you can focus in on those that compare favorably. Now comes a more complicated analysis. You need to compare each property and how it might perform over time and include debt. The 13 unit property may have a loan that is fixed for 5 years and then converts to an adjustable and then, and then, .... while the conforming (1-4 units) will have a 30 year fixed rate loan. Cash flows over time may, and will vary, as will future value. To analyze all the variables you need to look at internal rate of return (IRR) which will take into account all the vairables you might have. Now you can compare how much money you can make on every dollar you have invested for every year it is invested. Some states might require you have an onsite manager with 13 units which will change the overall value compared to one that does not require a manager. There are many factors that will need to be considered before you decide which property is right for you. Financing will play a major role in your decision. The 13 units will no doubt require 35% down? In addition they will probably need a 1.25 minimum debt coverage ratio (DCR). Often the DCR requirement will cause the downpayment to be more than 35% depending on where you are and what the local cap rates are. If you are in an area of 8% cap rates or higher, the DCR requirement will probably not be as big a factor. If you would like more information or have some specifics feel free to call me at 800 554-7362 ext. 208 and I will run the numbers for you. Paul Sylvester, CCIM

Jun 17, 2009
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Olga A.
Broker/Agent
Erie, PA

1. Consider how much funds you have available. You need 25% down plus closing cost. 13 unit is a commercial loan with higher closing cost vs. 4 unit residential (anything up to 4 is considered residential).
2. If money is not an issue go for the higher cap rate and cash return.
3. Consider the location, tenant history and vacancy rates.
You can e-mail me your further questions at olga@nashdomusa.com I specialize in income properties and property management. I can help you make an educated decision.

Jun 17, 2009
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Jim S.
Owner/Investor
Milwaukee, WI

Woah, You should probably start with a few books. Accountants, lawyer etc... then target an area and specific sub market of what you're looking for.
Your question is so vague and gives no insight into whether or not the property is even a reasonable purchase.

Jun 18, 2009
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Joshua O.
Broker/Agent
Madison Heights, MI

Start with a multifamily apartment complex if you can. The 13 unit makes sense as long as you have someone that can show you how the apartment biz really works. A good property manager with experience would be a good start. Feel free to contact me if you want. I would be happy to discuss apartments with you.248-538-0234x305

Jun 18, 2009
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