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Investing in Multi-family - LasVegasRealEstate.com

Investing in Multi-family

Investing in Multi-family real estate can be very rewarding, especially when it’s in Las Vegas!  It offers residual income, price appreciation, and the safety of owning a hard asset.   You may have grown up living in a rental home and seen your parents giving money to the landlord every month.  It is easy for you to want to be in the position of the landlord.

You may have learned growing up that owning assets—and real estate in particular—can be very difficult. It can be capital intensive, particularly for those who don’t already have assets. The tightened lending standards, which are arguably a good thing for the safety of the greater economy, further prevent normal people from acquiring rental property. For our purpose here, down payments should be focused toward properties which can be financed with an 80% loan, to maximize your ROI (Return On your Investment).

Buying a good rental property is difficult, but it is also possible.  LasVegasRealEstate.com asked Bruce Langson with the Woodcock Real Estate Group at Berkshire Hathaway HomeServices – NV Properties to provide our readers with the important steps to investing in multi-family real estate in Las Vegas. Bruce won 23 awards as a multi-family builder developer and manager before joining The Woodcock Real Estate Group to manage their multi-family division.

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Bruce Langson, Commercial Realtor, The Woodcock Real Estate Group, Berkshire Hathaway HomeServices – NV Properties

 

 

I can only speak from my experience, but I’m confident that anyone who is persistent, can invest in multi-family property using the steps below.
 

Investing in Multi-family – Several important Steps 

Step A: Learn all you can about real estate

In a lot of ways, this is the hardest part.

I would talk about real estate to anyone I could.

The most important part of the conversations is to ask questions. This is a time to learn how someone else made their money in real estate. The beautiful thing about real estate is that there are a ton of ways to make money (investing, brokering, research, tech, appraisals, renovations, etc.). There is a reason that real estate is a huge driver for the U.S. and global economy—it touches every aspect of life.

Ask a trusted, experienced property owner, developer, Realtor to discuss what they have learned.  The point of this step is to really learn about real estate from someone who has been in the place you want to be.  The things you learn might not fit your journey exactly, but you will gain a much broader education to guide you in the future as you begin investing in multi-family.

Step B: Commit to owning real estate

This part is crucial.  You do not need to come from a family with lots of money to start your investment into real estate.

It may take you years to purchase your first investment property, but you should always keep this goal in your sights.  You must be committed, no matter what it might take.

Currently, it is more difficult for people to buy investment property for the first time. In many ways, real estate is also a game of rejection. It may take numerous offers before you have a property accepted for purchase under your terms.

It is wise to embrace the struggle.  Each offer will give you additional information about the real estate market, income potential, financing as well as property condition.

If you are committed, you will get it done, period.

Step C: Investing in Multi-family – Work with a strategy

I’m going to give you a strategy that I think is attainable for many: Buy a 4-plex and rent it out for income and price appreciation. Focus on this strategy and this one alone. Don’t try and do flips, don’t try and reinvent the wheel, just be an investor, and buy one 4-plex to start.

This step could also be called “focus.” You need to focus on achievable goals, and this is it, trust me.

Your strategy is to buy a property that will cash flow positively. This means that at the end of the year, your outlay must be less than the property brings back to you.

First, you must find a property:

  • Go to LasVegasRealEstate.com or some other listing site and look at what is on the market here in Las Vegas.  The Las Vegas area is growing quickly but property prices are still very reasonable.
  • Click around until you find a 4-plex that may be a good fit.
  • Once you find a property you think may work, call me at 702-265-1735.
  • Call me. Yes, on the phone. No, don’t email unless I am not able to answer my phone.  Human interaction is important in real estate because most people don’t do it.  We will discuss your preference and I will perform an initial Property Analysis for you to help you evaluate the potential income from this property.
  • View the selected property in person.
  • Do this process until you find a deal that you like.
  • Once you find a deal you like, make an offer. (Note: I highly recommend that we ask the Seller to provide a one-year warranty for the building, and all its equipment, to minimize any unanticipated expenses.)

Second, once in contract, you must Underwrite the deal to see if it makes financial sense:

  • Go to PadMapper and look up the property in question. PadMapper is a site that aggregates rental listings on a map from Craigslist. It’s a convenient way to figure out how much your property will rent for. Also, ask me how much I think the property will rent for, because I may understand more about the variations in our market area than you can find from PadMapper.
  • I will help you figure out how much taxes are.
  • Get an insurance quote.
  • You need to estimate maintenance. I will say to estimate at least $200 per month for the building.
  • I can assist you in receiving a proposal from a property management company if you do not wish to self-manage.
  • Lastly, let’s assume that you will have one month of vacancy, which could amount to around $2,800 (4 units x $700).
  • An example of a property analyzed in this fashion is shown below:
Purchase Price $300,000
Monthly Rent (4 units x $700)  $     2,800
Annual Rent (4 units x $700 x 12months)  $   33,600
Annual Taxes  $     1,300
Annual Insurance  $     1,100
Annual Maintenance  $     2,400
Annual Management  $     2,880
Annual Vacancy (One Month)  $     2,800
Total Expenses:  $   10,480
Net Operating Income  $   23,120

“Net Operating Income,” also known as “NOI,” was calculated by subtracting “Annual Rent” by “Total Expenses.”

  • The next step is to talk to a lender and figure out how much you can borrow and how much that loan will cost you. Here at LasVegasRealEstate.com, we recommend our Preferred Partners: Residential Lender. Let’s assume that you find a good lender, who will give you a loan for 80 percent of your purchase price, with a fully amortizing 30-year mortgage term at 5.25% fixed interest rate.  In this scenario, your loan payment would be about $1,325 per month or $15,898 annually.  I derived this from my Property Analyzer form which we will use and refine throughout your evaluation process.
  • Using the numbers above, your CASH FLOW would be $7,222 per year. This satisfies the requirement that the property will cash flow positively.  Please remember that besides the annual CASH FLOW you should make, you will also receive the benefit of your tenants paying your mortgage down by approximately $3,300 every year and a probable tax deduction, equaling approximately $9,800.  That is a total potential benefit of $7,222 + $3,300 + $9,800 or $20,322 annually for owning this 4-plex, not to mention the property appreciation during the year.

Step D: Purchase the property and get it leased

 An important aspect of purchasing an existing 4-plex is that you know what your occupancy is at the time of the purchase and can start working on filling up any vacancy you may have prior to the closing. This will minimize any needed cash during this initial purchase period.

  • You will need to create an entity for your new investment venture, set up a bank account, and likely file LLC docs in Nevada.
  • If you use the services of a local management company, they will be responsible for marketing your property for you. If you prefer to manage it yourself, Craigslist is the local ‘Go-To’ site for apartment rental information and advertising.

 Final Step: Stay persistent and keep pushing

  • I have given you a simplified step-by-step process. There are numerous details I cannot possibly cover here. You will have difficulties, bad tenants, renovation problems, and all kinds of other issues when investing in multi-family real estate in Las Vegas. Don’t be frightened; work toward a solution and never quit. If you stay persistent, you will be successful.
  • Owning real estate for the first time can seem like a daunting and insurmountable task. Buying a 4-plex and then renting it out is the safest way, in my opinion, to get experience and make money. You won’t become rich in a week; this is a gradual process. You want to become wealthy, and that takes time. At the end of your first year of new property investment, it would be a great time to start looking for your next acquisition and continuing to compound your profits.
  • The key to building this kind of long-term wealth is having compound interest work for you, not against you. Buying rental property is the most attainable way to do this.

Please feel free to discuss any aspect of rental income properties and their operation with me.  I have built and owned hundreds of apartment units and have a deep understanding of real estate investment, and the Las Vegas/Nevada market.

Thank you for reading our post, “Investing in Multi-family Real Estate.”  For more Las Vegas real estate buyer tips, commercial investment guidance, information on moving to Las Vegas, Las Vegas real estate market news, information on Las Vegas homes for sale, selling or buying a home in Las Vegas, or general real estate information please visit our website www.lasvegasrealestate.com.

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