SS281: What I’d Do Differently on My First Multifamily Deal

SS281: What I’d Do Differently on My First Multifamily Deal

Charles purchased his first multifamily property in 2006. In this episode, Charles discusses the mistakes he made with that property and what he would have changed if he were to do it again.

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Talking Points:

  • I purchased my first multifamily property in 2006, a 3-family house, in a small city in central Connecticut. I made a number of mistakes with that deal, which I learned from, and when I purchased my second deal in 2008, it was a much simpler and easier process.
    • 1. Purchasing a Heavy Value-Add Deal. For my first property, the renovation was over my head. I owned a business, and for 2 months, it was a mess juggling the renovation and my business. I wish I had paid more for a property that was in much better condition and did not require that level of work.
    • 2. Not Having a Clear Renovation Plan. I never made a concrete plan, budget, or timeframe for the renovation. I didn’t have people lined up to start working, and it was really just bringing in handymen who were doing one job here and one job there, which was a hassle to manage. I should have really hired a contractor to start and finish each floor, but it was an ongoing renovation across all 3 floors.
    • 3. Not Having a Clear Business Plan. My plan was really just to rent the 2 other floors and have them cover the majority of my mortgage. My operating expenses and income were pretty much in line with my estimates, and I knew property taxes would increase, but I did not have a clear business plan for the property’s goals in 5 or 10 years. 
    • 4. Delaying Cap. Ex Projects. There were a couple of capital expenditure projects I should have done sooner, which I completed over the first 4 years of owning the property. These were mainly delayed because I did not have the funds readily available. This mainly included the roof, which needed replacement, a new bathroom in one of the apartments, and moving a hot water heater from the third-floor apartment to the basement. If I had correctly budgeted for these items, I could have done these immediately after purchasing the property. 
    • 5. Market Timing. I should not have purchased at the top of the market, but this is much harder for a first-time investor to recognize, so I won’t dwell on it. Having a better understanding of where the market is can help you negotiate a better deal and limit your downside.
  • You learn a lot when you purchase your first rental property, really, when you purchase any rental property, but you will learn the most on that first one. I would not change the experience, but there are a few things I wish I had known before buying it, with the main one being that the I wish the property needed a much lighter renovation. If this one thing had been changed, it would have made all of my other mistakes less significant.
  • If you would like to learn how to minimize risk when buying your first rental property, check out episode SS116.

Transcript:

Charles:
What would you do differently if you could go back and redo your very first rental property? Well, I bought my first multifamily property back in 2006, and the deal taught me some lessons the hard way. Welcome to Strategy Saturday. I’m Charles Carillo, and in this episode I’m gonna share what I would do differently if I were buying my first multifamily property again. Let’s get started. I purchased my first multifamily property in 2006. It was a three-family house in a small city in central Connecticut. I made a number of mistakes with that deal, which I learned from. And when I purchased my second deal in 2008, it was a much simpler and easier process. Number one, purchasing a heavy value add deal for my first property. The renovation was over my head. I owned a business and for two months it was a mess, juggling the renovation and my business, and I wish I had paid more for a property that was in much better condition and did not require that level of work.

Charles:
Number two, not having a clear renovation plan. I never made a concrete plan budget or timeframe for the renovation. I didn’t have people lined up to start working, and it was really just bringing in handymen who were doing one job here and one job there, which was a hassle to manage. I should have really hired a contractor to start and finish each floor, but it was an ongoing renovation across all three floors. Number three, not having a clear business plan. My plan was really just to rent the other two floors and have them cover the majority of my mortgage. My operating expenses and income were pretty much in line with my estimates, and I knew property taxes would increase, but I did not have a clear business plan for the property’s goals in five or 10 years. Number four, delaying CapEx projects. There were a couple of capital expenditure projects I should have done sooner, which I completed were the first four years of owning the property.

Charles:
These were mainly delayed because I did not have the funds readily available, and this mainly included the roof, which needed replacement, a new bathroom in one of the apartments, and moving a hot water heater from the third floor apartment to the basement. If I had correctly budgeted for these items, I could have done these immediately after purchasing the property. Number five is market timing. Now, I should not have purchased at the top of the market in 2006, but this is much harder for a first time investor to recognize, so I won’t dwell on it. Having a better understanding of where the market is can help you negotiate a better deal and limit your downside. You learn a lot when you purchase your first rental property, really when you purchase any rental property, but you’ll learn the most on that first one. I would not change the experience, but there are a few things I wish I had known before buying in with the main one being that I wish the property needed a much lighter renovation.

Charles:
If this one thing had been changed, it would’ve made all my other mistakes less significant. And if you’d like to learn how to minimize risk when buying your first rental property, you can check out episode SS 116. That’s SS 116. Please remember to rate, review, subscribe, submit comments, and protect our show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week.

Links Mentioned In The Episode:

  • SS116: How to Minimize Risk When Buying Your First Rental Property

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