Comment of the Day: Multifamily Madness

COMMENT OF THE DAY: MULTIFAMILY MADNESS “It’s crazy that there are still so many [multifamily] properties trading at such a low price considering the land value, anticipated land value, and strong rental market/income. I’ve been buying whatever I can and suggest readers to the same. Some of the property is commercial (5+ unit) and extremely hard to get loans on (full discloser: I have a 5+ unit for sale with seller financing offered), however there is a lot of 1-4 family buildings that are fully occupied where instantly you’d be buying a building that would easily pay all costs (mortgage, taxes, insurance, maintenance, etc.). And those are very simple for most people to get. No one seems to be going after them which is keeping prices low. I just bought four 4plexes at near land value where the rental income is about 2x the payment. Not sure how they were not snatched up earlier.” [Cody, commenting on Montrose H-E-B Market: What Happened To That Grocery Store on Stilts?]

15 Comment

  • Must be nice. Me, I’d be happy if I could buy a single house, let alone a few. I know the bad credit’s my own fault, but still…

  • And really, being a landlord is a real chore. With all the different types of tenants around, good bad or indifferent.

    No one ever treats your property the same way YOU treat your property.

    We had a rental house several years ago and I would not do that again for anything. There are too many other things I could think of to spend discretionary income on.

    I applaud those who want to do it though as there is a need for rental housing.

  • Cody… Please forward me the addresses of the four 4 plexes that you purchased that are throwing off 2x the payment. Please, Please post them. Cause I already know know……….your full of shit!!

  • have you checked HAR yet, they might be listed for sale.

    definitely sounds dubious. maybe if you’re buying them with a majority of it in cash, but theres lots of good investments when you got a couple hundred grand in cold hard cash to throw around.

  • @Dan: First, I’ll leave aside properties outside of Montrose as finding cash flow properties in areas you wouldn’t want to leave is easy, and I don’t think you were disputing that “somewhere” there are cash flowing properties
    Second, as you don’t even know me, I’m not sure why you took such a negative tone but I’ll still reply with a few examples.
    Now to your question… The last few fourplexes I bought are a few blocks from the new HEB in the article (if you want the exact address, my e-mail is “codybiz” at gmail. I’d rather not use this forum to advertise).
    While I can’t share the purchase price, let’s use a figure of $300k. A traditional loan (which most people should be able to get as the properties are 1-4 family) would run about $1,300/month (20% down, adding 1% to the rate as it’s an investment property, 30 year fixed).
    The current rents are $680/month per unit. That’s over twice the mortgagee payment (as I said in the quote) in rent. There are other bills (water/taxes/insurance/maintenance) but you’re starting out with plenty of rental income left over for those. I could give you a detailed breakdown but it’s a bit much for a comment reply. Factor in appreciation of the property (mostly from land), depreciation and other write offs on taxes, and you have a pretty good return.
    While not everyone has $60k sitting around to put down 20% on a $300k income property (you actually need less than 20% as you’ll likely get prorated taxes back, security deposits, etc.), there are lots of people that DO have $60k rotting in the bank at 1 or 2% that could be making 5-10x that amount (even after they budget for management, reserves, etc. and that return doesn’t include the other benefits of rental property)
    So before you claim someone is full of shit, you should do a bit of research. While these fourplexes are not on har any longer since I’ve bought them, I do have one a few that *are* on HAR with similar numbers.

    Again, I don’t want to use this site to advertise so I’ll just be general. It’s a triplex, brings in about $3,000/month in rent, and a mortgage would be about 1/2 that amount. So there you go. Another example of a 1-4 family property that fits what I had said.
    If you want an example of a commercial property, I have a 6 unit on the market just a few blocks from the HEB (you can e-mail me for the address if you want), and it brings in almost $5k/month. It’s hard to calculate what a payment would be since commercial loans are so hard to get now, but the seller financing I’m offering is a 25 year amortization and the payments would still be less than 1/2 the rent.
    While I don’t expect or want an apology, I hope this help change your mind about investing in multifamily in 77006/77098. This is a rare market in that people want to live here, the land value is strong, close to everything, and there are several cash flow deals to be found. If you have the means to do so (money sitting in the bank, killing you due to inflation, friends, family, other investors looking for opportunity) but in this area. That’s my own opinion anyway and I’ve been putting my money where my mouth is.

  • Good for you, Cody. Unfortunately, while you make a compelling argument, you’re not proving how accessible buying properties like the ones you speak of is, you’re really proving the age-old adage that “you gotta have money to make money.”

  • @1986: Correct. My point was never that you could buy investment properties in today’s lending market with little or nothing down. Only that there are many deals to be found out there in good quality areas (such as Montrose) where the rent can be ~double a mortgage payment.
    That’s the fact that Dan said was BS so I wanted to give a few real life examples (using properties I’ve bought, properties I’ve listed, 1-4 family, commercial, etc.) showing that these deals do exist.
    Being able to come up with the down payment is a separate issue and admittedly challenging. That said, there are plenty of people that have a down payment or otherwise could by a property that are worried about taking the plunge. If you can find something in a quality area, that will pay for itself even after management expenses and reserves, and throw off a good return on your down payment, then get that cash out of the bank.
    On a similar note, in my experience it seems that the barrier most people have to buying an investment property (other than getting over the fear) is not the down payment, but rather the loan. Especially on the commercial side. In almost all my listings, the question I get is “can you seller finance?” (That’s typically the first question I ask as a buyer as well). These people have the down payment but either can’t get a loan or would rather not deal with the lending process. I don’t blame them. Dealing with lenders is disgusting at the moment.

  • well i suppose i misunderstood as i thought you were saying the income is 2x the mortgage after taxes, insurance, etc. which is far from the case as you’ve outlined. still decent investments that i’m moving towards myself.

    the important note about oppurtunities like this is not necessarily having the chunk of change to buy, but having enough sideline/revolving cash to pay for large maintenance costs that can arise suddenly and sporadically.

  • I have a 4plex with garage apt,bought 09/99 for $255,000, around the menil. I get 2x my payment. The killer is the taxes, there $800 a mth. The insurance is $2000 a year,(it’s commercial because there is 5 units). The secret is to pay it off, as soon as possible.

  • @Jeff: Wanna sell it? jk :)
    Yeah, property taxes are a killer. It’s my #1 bill. What really sucks is the new higher “for multifamily only” water rate. I think the city passes things that they think will just stick it to ‘rich apartment building owners’, not realizing that the costs get passed to renters. Or, rather, I think the city is smart enough to know the effect, but they know voters will be too dumb to realize/care.
    Sad that it’s sold to renters as something that won’t effect them when it very much does.
    @Joel: As long as you have enough cash flow, there is enough to have a reserve for large capital improvements. There are not as many unexpected things that can happen as you might think. Any big item is normally going to be an insurance issues (I’ve had properties for 4 years, never had an insurance claim). Other than that it’s the occasional roof (which isn’t as expensive as people think) and typical unit upgrades (which pay for themselves with increased rent and, in a way, increased equity when you sell)

  • Not Interesting in selling now, expecting to pay it off next year. I then will be able to lower my insurance costs as well. On another property, I was able to increase the deductable to 5%, and cut that bill by 60%.
    I did have to upgrade all my units though to central a/c, dishwasher, and etc., I keep my tenants, if one moves out another moves in the next day, there never empty.

  • @Jeff: Congrats on the aggressive pay off! That’s great to hear. I think after I buy a few more properties I’m going to pause for a while and use the cash flow only for income + debt payoff rather than income + new property purchase fund :)
    God bless the Montrose area as far as occupancy right? It’s almost impossible to have a vacant unit unless you are trying to have one. It sounds like you have a great property and are running it well!

  • I was an accountant, in my previous life, but now live off my properties 100%. I do all the work, pumbing,electrical, yard, you name it, I do it. I rent them myself. It was rough there for awhile, but once I paid one off, things changed. I don’t want more properties, I have four (total of Fifteen apartments). I just want to accumulate some $ , to get a second home, or duplex in or around Austin.


  • Chris: That seems like a reasonable thought out reply.
    In actuality, all costs are passed to tenants. The only exception is if a cost is carried by one property that isn’t by another property (such as an excessively high mortgage, or unique maintenance issue, etc.) . Since all multifamily properties got smacked with higher water rates and higher water costs, that gets transfered 100% (or sometimes even more) to tenants.
    So who gets the shaft? Those living in slumloard ran properties… which happens to be the people who can generally least afford it.