How much to put down?

[Marv]

I am planning on my first investment and was going to be putting 25% or more of my own cash as a down payment. My thoughts are that I do not want to make myself "mortgage poor" if the property is patially vacant for a period of time (considering one or more 4-plex to start). I see and hear so oftem about 10% or even no money down purchases and I really do not feel comfortable about it. Maybe I am simply not informed enough on how or why it should be done that way.
What is a realistic and appropriate amount to put down when considering a multi-unit investment?

Thanks
Marv

[Dan Auito]

Commercial is traditionally 25% from my experience Marv, but can go off of earnings as well, so it can be less. Here in Florida you'd better count on 25% as the earnings aren't going to allow anything less.
A fourplex or less is considered residential so you could get away with 20%.
I have known a lot of investors and the really rich ones have understood and played the Commercial game right from the beginning, I would encourage you to go full tilt commercial and learn everything you can in that vein since you have a slant towards it at this point.

[Tim]

Marv,

I can tell you that while residential (single and multi family) buildings have been very good to me I took all of our buyers off the street in October to be retrained. In 2008 my partners and I are looking to do commercial exclusively. I will keep all of my sfh rentals as we expand into commercial but I am not looking to add to them in any significant numbers.

It is a touchy transition for me and my group because we have a lot of infrastructure in place to deal with the residential stuff. The intention is to keep all of it in place and transition it and the people to the commercial side as the sfh and small residential shrinks by natural attrition over time.

While many at the Field Guide are still doing small residential and are still very successful at it, for me commercial seems to be the next logical step.

I am also toying with the idea of forming a private non-traded REIT, but am in the VERY early stages on that one.

[SPIVALAW]

Tim
Smart move.
Careful commercial is addictive.

Commercial tenants usually fix up the property so their business will look nice.

Because they spend money advertising their location, they usually want to stay a long time. 5 year with renewals is not unusual.

They expect yearly rental increases that usually are in the lease.

If they dont pay they are easy to evict. ~The law doesn’t protect commercial tenants like residential tenant’s “homes”.

Commercial tenants usually pay rent and “triple net” (that means they pay all taxes and insurance, maintenance and repairs).

Some commercial tenants pay additional rents based on income.

I love commercial tenants.

[Tim]

I can already tell it is addictive. It feels like it did in the early 1980's when I started in residential.

There are so many advantages to commercial over small residential right now.

But, all things are cyclical and I definitely will keep some of the multi unit and larger residential holdings. I just can't see any reason to aggressively add any sfh right now. I do see advantages for someone starting out and I am helping several in that position but now I see it as a means to an end and wish I had made the transition years ago.

[Marv]

So I guess I should shift my sights to commercial? I simply didn't consider it, but from the sounds of it and the posts I am reading, I shouldn't even bother with residential.
Looks like I have a lot more research and reading to do. :biggrin:

[Debbie]

After being a landlord for seven years and already bored, I look forward to getting into commercial. That is our goal for 2008.

While I acknowledge it takes time to learn and take action but I gotta be honest, going commercial scares the heck out of me! But one hubby and I are interested in getting our feet wet or jump into the pool, whichever appeals to us at the moment.

[SPIVALAW]

Residential is great bread and butter.

Keep in mind with commercial:
~People don't move out as fast SO they don't move in as fast either.
Commercial often has longer vacancies.
~If you have 4 people in a family you can rent them a 2 bd room or 3 bd or 4 bd, with commercial it has to fit.

For example once you rent to a veterinarian, you will prevent many future business there...

Everything has pluses and minuses.

I have found for me I like:
~SFH
~condos
~deep water properties
~church buildings
~mobile home parks
~warehouses
~retail commercial
~large apartment buildings over 50

I dont care for
~Smaller multifamily
example 4 or 8 plex (different tenant)
~Offices
~dont like rehabs
~dont like lease options
~dont like flips

Opinions and experiences and goals vary

Happy New Year!

[Debbie]

For example once you rent to a veterinarian, you will prevent many future business there...


Why is that? Is there a stigma? Could it be too many pees and poops? Loud barkings?

I hesitant on church buildings. Are you referring to large church building or smaller buildings?

I'm surprised you hadn't mentioned other commercial such as laundromat, car wash, grocery store, etc.

[SPIVALAW]

I am giving away a secrete here but....

I love any size church.

There are always congregations looking for places to rent.

AT least here in the south Churches often rent out rooms, school cafeterias, club houses and even movie theaters.

To have a place all set up and decorated that they don't have to rush in and out of or set up and break down chairs or turn on heat... they love a "turn key" place.

They generally have good cash flow (they get tax free contributions)

Churches are only in the building a limited time each week. Few hours on Sunday, 1 night a week prayer meeting or bible study, maybe a chiro practice. Some have occasional wedding or funeral.

less wear and tear on property.

They never spill beer on the floor.

If I get sick they pray for me to get well.
(opposite of what some of my non church tenants pray to happen to me)

[TommyOH]

I agree with Tim. My residential spark was dwindling last year. I made the move to get educated, practice running numbers, and the next thing you know I'm buying apartment buildings.

Nothing puts the thrill back into real estate better than looking at a killer deal, running the numbers until your brain is mush, and pulling the trigger on a multi-million dollar deal.

[Debbie]

I agree with Tim. My residential spark was dwindling last year. I made the move to get educated, practice running numbers, and the next thing you know I'm buying apartment buildings.

Nothing puts the thrill back into real estate better than looking at a killer deal, running the numbers until your brain is mush, and pulling the trigger on a multi-million dollar deal.

How have you been purchasing the apartment buildings? Via sub2? Conventional type commercial loan?

[TommyOH]

Believe it or not it's been several different scenarios. I have done conventional finance with seller carry, and am actually negotiating a lease with option deal for 58 units right now. Just about any way you can think of structuring a residential deal can be done with commercial, and then some.

[Debbie]

Believe it or not it's been several different scenarios. I have done conventional finance with seller carry, and am actually negotiating a lease with option deal for 58 units right now. Just about any way you can think of structuring a residential deal can be done with commercial, and then some.

Methinks it's time for you to host a chat. It'd be great for us to learn from another MB fambly member! :praise:

[TommyOH]

Well Deb, one of these days I'd be more than happy to, but there are some pretty heavy hitters here that could do the same chat and probably even better. I haven't had alot of free time, but there's always time for the fambly.

[SPIVALAW]

Well Deb, one of these days I'd be more than happy to, but there are some pretty heavy hitters here that could do the same chat and probably even better. I haven't had alot of free time, but there's always time for the fambly.

Tom, a "heavy hitter" is just someone who has done the same thing another investor has done just a few more times.

Also luck comes into play, lucky no hurricane, lucky no bad health...

All of us as investors, just like doctors and lawyers, we are all just practicing. Everyone can learn from any one.

Your experience, especially your excitement and passion would be great.

The chat is just typing. Here is a suggestion, type up somethings youd like to share and as the talk progresses cut and paste.

Never sell yourself short.

Make it a great day.

[Debbie]

Tommy,

Howard said it all.

How about it?

[kkemper]

4 plexes are not automatically good investments.
You are smart to realize that even with
such a large investment, you can be in fiscal
trouble quickly if tenants either do not rent
from you or do not pay on time.

Maybe you should seek a partner to share this
risk---or invest in going business first that
is returning cash every month and THEN,
with part of your profits, buy a 4 plex.
4 plexes ruturn from 0% [Calif] to
25% [Detroit] and businesses run well
return 25-100% per year.

[SPIVALAW]

4 plexes are not automatically good investments.
You are smart to realize that even with
such a large investment, you can be in fiscal
trouble quickly if tenants either do not rent
from you or do not pay on time.

Maybe you should seek a partner to share this
risk---or invest in going business first that
is returning cash every month and THEN,
with part of your profits, buy a 4 plex.
4 plexes ruturn from 0% [Calif] to
25% [Detroit] and businesses run well
return 25-100% per year.

I agree,
personally I don't like my 4 plexes or 8 plexes
they are like a little community and all know everything.
One problem tenant spreads.
I prefer 4 single condos 4 sfh or huge complexes.

To me they are more transit than SFH

Different properties produce different type tenants.

[The GUY]

I am planning on my first investment and was going to be putting 25% or more of my own cash as a down payment. My thoughts are that I do not want to make myself "mortgage poor" if the property is patially vacant for a period of time (considering one or more 4-plex to start). I see and hear so oftem about 10% or even no money down purchases and I really do not feel comfortable about it. Maybe I am simply not informed enough on how or why it should be done that way.
What is a realistic and appropriate amount to put down when considering a multi-unit investment?

Thanks
Marv

Everyone is offering you great insight and here is something additional to think of. Your down payment requirements will shift depending upon the type of commercial property you seek. Generically properties like apartments require less money down than shopping plazas and then gas stations. When you venture into that world do your research to pick the property type you wish to get "married" to and ensure you speak with many different landlords and lending options. The folks you speak with for your loan should show you some of the number break downs and when you get into this game you must be able to "run" numbers effectively and efficiently in order to keep your property out of the red. I would also recommend teaming up with an experienced Realtor in commercial in your area as they should have good indications of what numbers are good and bad for the properties you view. Typically these are more expensive properties because they require more cash to run but the rewards to your venture could pay off quite well. Be realistic with your money and step in slow, there are a bunch of variables in this arena that you should understand to guide your decisions. Good Luck!

[SPIVALAW]

Those no money at closing deals....

well I prefer when I assume their loan or bank finances, the difference is owner financing, and I walk away with commission at the table...

yeah I hate to buy something and not wall away with money...

LOL
Actualy I am serious.

% of down payment is a personal comfort zone thing.
I prefer to be leveraged.