Investing in Duplexes, Triplexes, and Quads
"Investing in Duplexes, Triplexes, and Quads"
By Larry B Loftis, ESQ
Tags: Duplex, Triplex, Quadraplex, Florida Real Estate
I don't usually read books published in 2006 because they are clearly outdated. Tax laws have changed at least twice and we had that little 2008 incident, but the title "Investing in Duplexes, Triplexes, and Quads" caught my eye and I figured I would give it a try.
The reasons Mr. Loftis gives for believing in the power of multifamily residential properties mostly still applies today, but it is interesting to hear him tell stories of appreciation in Orlando, Florida in 2006. Cheaper down payments is one benefit that still exists (if you live in the unit). FHA will allow an owner-occupant to put down 3.5%. Affordable purchase prices is also mostly still available. Right rent range, rent safety from vacancy, immediate cash flow, cash back at closing, economies of scale, fixed rate mortgages, 30 year terms, low interest rates, and homestead exemptions are all still checks as well. Lesson learned, twelve years and one crash later and this is still a great place to start investing!
If I learned anything new from this book, this is it. Close on the 2nd or 3rd day of the month if you are a buyer. Your mortgage payment won't start until month two, but rents will be paid every month typically on the first. If you close on the 2nd, you will receive a pro-rated share of the rent equal to most of the month. This is free money!
Another technique for finding free money is pulling out money from a refinance. This assumes you can capture appreciation, but one you get enough out to recoup your down payment, you are playing with the house's money. Loftis and Robert Kiyosaki both call this technique the "velocity of money." You can use tax-free money from a refinance to redeploy into more cash flowing assets.
When buying these properties it is best to look for agents with Certified Commercial Investment Member (CCIM) or Society of Industrial and Office Realtors (SIOR) designations. They are experts in Real Estate Finance and typically deal with larger commercial properties.
Some buyer brokers will rebate a portion of the commissions for you. This could essentially give you a 1-5% discount on the property. If you are doing most of the work yourself anyway, this might be a good option.
The best agency to use is RE/MAX if you decide to get a full service broker. Agents pay rent at RE/MAX and keep 90% of their commissions. This keeps all the part-time agents away.
The formula for buying small apartments is:
* Triplex or Quad
* Good to Great Location
* Fully Occupied
* Cosmetic Rehab
* Low Taxes
* 7.5 to 16 GRM (see the book for a breakdown of GRM and a range chart)
* Positive Cash Flow
Mr. Loftis also has some wealth building plans which basically boil down to buy quads, live in one unit, fix it up, rinse and repeats. Sounds like a good idea to me!
He also mentions an interesting website at the end. Johntreed.com provides rankings for real estate Gurus. Also, the WSJ has a real estate website at RealEstateJournal.com.
Biggest Takeaway: Putting "or assigns" after your signature draws attention and isn't needed. Most contracts have an assignments section in the contract.
April 14th, 2018
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