I want, no, I need to provide affordable housing to others. My life has led me to this place. I’m not young. How can I get there?
1. Buy a multifamily building
I’ve done this before. I bought a triplex in Santa Monica for $1.3M and I rented out the other two units. It worked out well but I sold it after three years because I wanted to invest in crypto and the returns were not as good as real estate. But it was worth it for me just to get my feet wet again in the multifamily business.
2. Buy a building that is currently renting
In other words, don’t buy an apartment building that has tenants who have leases and are paying rent month-to-month. Buy a building where everyone is month-to-month so you can evict them all and then rent it out at higher rates than what you paid for it. This is called “flipping” a building although sometimes people do this with houses as well. The benefit of doing this is that you don’t have to wait 3 years to make your money back like with a regular rental property. You can usually sell such a property within 12 months or less if you do it right (and I don’t know how to do it right).
3. How much should I pay?
There are websites that list all apartment buildings for sale in any given zip code or area of the country. The price range varies widely depending on location, number of units, quality of the neighborhood, etc but here are some ballpark figures: - single family home = $100k-$200k per unit (i.e., a 2 bedroom house would be around $200k) - two bedroom condo = $150-$400k per unit - four bedroom condo = $300-$700k per unit - apartment building = $50-$80 per square foot so if you look up an apartment building on zillow and sqft=2000 then divide by 50 (or 80) you get around $400,000 (or $800,000) which is probably too low but gives you an idea of what to pay.- these prices are assuming decent quality housing in decent neighborhoods.- these prices also assume there are NO tenants living there already.- if there are tenants then add about 10% more depending on how long they have been paying rent.- so if someone has been paying $1000/month for 3 years then you need to add about 30% more than those above numbers ($1200/month x 12 months x 4 units = about $72,000 extra). So now we are getting into the range where buying an existing rental property may be worth considering instead of flipping one (if you can find one). If someone has been paying rent for 10 years then perhaps consider flipping rather than buying outright since the rents would be higher and perhaps harder to replace once they move out.- Note that these figures do not include maintenance costs or vacancy costs when no one is renting it out. These costs vary widely based on location, quality of housing, etc but let's say maintenance costs will run another 5%-10% of your purchase price each year plus vacancy will run another 10%-15%. This means that if your purchase price is $100k per unit then your annual expenses would be around 20K/year plus mortgage costs which means you need income from tenants equal to at least 25K/year (in this example) just break even unless you can sell at a profit after several years.- Also note that REITs exist that allow investors access to many multifamily buildings across the country without actually owning them yourself.- For instance, MAA or VNQ represent small multi-family apartment REITs available on major exchanges like Nasdaq or NYSE . These REITs will own dozens of properties in various cities across