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Multi-unit properties have many advantages over single-family homes. Multi-unit properties offer economies of scale that result in greater profit per dollar of purchase price since the overhead costs and many of the fixed expenses are proportionally lower when spread over more units. There is only one roof, one boiler, one plumbing system, and one tax bill. Multi-unit properties provide greater positive cash flow when compared to a single-family house. If a tenant moves out of a single family house, the landlord is responsible for making 100 percent of the mortgage payment, utility bills, property taxes and insurance. Compare this to a quad (four-unit building): If one tenant moves out, the landlord still has three other tenants paying rent that cover the mortgage payment, utility bills, property taxes, and insurance. The more units a property has, the greater the positive cash flow. The downside to multi-family properties is the higher purchase price even though the cost per unit is always lower when compared to single-family properties. Recently my partner and I purchased six quad apartment buildings in one year using creative financing. Let me explain the different methods we used in purchasing these properties. The first building we purchased was in pre-foreclosure. We submitted a short sale offer to the bank to purchase the property for $50,000 below market value. The bank accepted our offer, and we instantly had $50,000 in equity. The next property was purchased from an out-of-state landlord who was burned-out trying to manage an out-of-state property. We were able to purchase the property and obtain bank-financing for 75 percent of the purchase price. The seller offered to carry a second mortgage for the remaining 25 percent of the purchase price. The terms of the second mortgage were no interest and no payments for 15 months and then payment in full. Our only out-of-pocket costs to purchase the property were closing costs which amounted to just a few thousand dollars. Another purchase was a bank-owned (REO) property. The bank hired a real estate agent to be their agent to hire a property management company to evict the current tenants, oversee the rehab of the building, and lease the property to new tenants so the bank could place the property for sale. The agent contacted us since we owned a property two doors away. We offered to purchase the property in "as-is" condition if the bank would provide a favorable loan. The bank offered to provide a loan for $264,000 on a purchase price of $265,000. Our cost to purchase the property was the $1,000 down payment. The bank also structured the loan as a commercial loan so the loan would not report on my personal credit report. The fourth building we purchased was from a landlord of a distressed property who was on the verge of foreclosure. We agreed to purchase the property "subject-to" the existing mortgage and paid the owner $15,000. This money was borrowed from a private investor who is being repaid from the monthly cash flow from the property. Our out-of-pocket expenses were limited to paying for closing costs. The quickest way to riches in real estate is to invest in multi-unit properties, and successful investors will use creative strategies to reach their real estate goals.
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