Issue 8: Multifamily Magic?Issue #8 - April 8, 2010 Here's the basic outline of the idea: buy a multi-family property that needs fixing up. Live in one unit and fix up the other units. As units get fixed up, rent them out. The ultimate goal? Get the tenants to pay all your housing expenses! Read on for the economics of this plan. But first, a couple of announcements: Upcoming WorkshopsI am giving 2 workshops at the Unitarian Church of Marlborough and Hudson (www.ucmh.org):
Multi-family MagicWe are going to look into MLS #71052011 as an exemplar. It is located in Marlborough, MA, in a decent neighborhood, very conveniently located at about 1/2 mile from I-495. It is a 4-unit building and the asking price is $249,900. It is billed as an "Excellent investment opportunity on this large four unit property." The second line is the kicker: "The price reflects the condition of the property." In other words, it's a fixer-upper. [I have not personally looked at the property yet.] Expected ExpensesThere are two types of expenses related to running a multi-family property:
Expected IncomeThis house has 4 total units:
Let us assume that you take Unit 1 and the tenants in Unit 2 continue to rent at current rent. You start living there, and fix up Units 3 and 4 as quickly as you can. As the units get fixed up, you get tenants (either yourself or through a property manager who can screen tenants for you). Does this plan sound too rosy? Perhaps it is. All I can say is, you will never know until you do it. In any case, even if you can find only one tenant and one unit stays vacant the whole year, you will have made a significant dent in your housing expenses. NOTE: I have not talked about the tax benefits of the multi-family property (such as tax-deductibility of operating expenses and depreciation). They only add to the attractiveness of the deal. RecapIs this a great opportunity or what! This is public knowledge, yet very few people will know about this deal. Fewer still will go to the trouble of checking it out. And there will be only a handful of people who will actually make an offer on the property![Also note that I have picked a property that is not bank-owned, not in a depressed neighborhood, not a short-sale and not in any of the hardest-hit states (Florida, Arizona, Nevada or California). I have also assumed that you are paying the asking price, which you never do in real estate. There are much better bargains to be had out there! You have to start looking and even more important - start building a network.] I can hear you asking: if this is such a great deal, why isn't Manoj doing it? The answer is simple: most such deals involve making significant trade-offs in your life and lifestyle. You have to be willing to step outside your comfort zone. You have to be willing to be a handyman and put in the necessary sweat-equity into the property. You have to be willing to deal with the tenants. (All of these can be hired out to professionals and it is worth it in many cases.) At the current stage of my life, I am not willing to do it. It will mean that I push back the date of my financial freedom - and that is OK with me. Now that you know about this deal, what is stopping you from acting on it? My point is not to put you on the spot. My point is to make you aware of all the possibilities out there and to help you make conscious decisions about your lifestyle. Update on My ProgressAnd here is my latest personal financial update:
Jars UpdateThe Jars System is billed as the world's simplest, easiest and most effective money management method. My wife and I started following it recently, and I plan to publish them here every month. Here are our numbers for the last quarter (compared to the percentages recommended as targets):
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