avoid 6 fam houses? (Frank Chin?) - Posted by roy

Real Estate Investing Apartments
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Posted by Scott-CA on March 07, 2003 at 17:27:52:

I was looking at buying a 4-plex a few month ago. When that fell through I looked at a 5-plex. I ended up buying neither. I went with several SFH instead since that is what I?m familiar with and there were many more to choose from. The prices for multifamily properties in my target area seem too high and there are few deals.

There actually were what seemed to be multifamily properties of 5 units and more that seemed reasonable. But when I checked into loans, insurance, etc., I found that they are considered ?commercial? and have less favorable loan programs and higher insurance rates. Those facts alone can necessitate a lower per unit purchase price when buying properties of five units or more.

I don?t know why someone would say 4 or 5 family vs. a 6 family. I think it should be a 4 family vs. a 5 or 6 since properties with four units are generally the cutoff point before you have to go ?commercial?.

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avoid 6 fam houses? (Frank Chin?) - Posted by roy

Posted by roy on March 07, 2003 at 14:50:40:

I cam across a post in the archives where Frank Chin wrote that he keeps away from 6 family houses.

Im curious as to why…

There are many 6 houses listed on MLS much more then 4 or 5 family and the RR multiple is lower as well. So other ppl seem to share the same opinion … please fill me in

Thanks

Roy

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PS - Posted by David Krulac

Posted by David Krulac on March 08, 2003 at 07:28:49:

many older 6 unit buildings are 2 units per floor and 3 stories. I personally avoid 3 story buildings for 2 reasons:

  1. people don’t like walking up to the 3rd floor, and these buldings don’t have elevators.

  2. in general I don’t loke buildings where people live above and below each other. I prefer side by side.

  3. for fire and emergency situations I don’t want a tenant on the 3rd floor.

You may consider this a stupid rule, and all I’m saying is that its MY rule, you do what you want.

David Krulac
Central Pennsylvania

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Re: avoid 6 fam houses? (Frank Chin?) - Posted by Frank Chin

Posted by Frank Chin on March 07, 2003 at 19:56:25:

Hi Roy:

Both Dave and Scott are correct.

Just to add that Rent Stabilization starts with 6 units. Five units and below are not controlled.

Add this to the fact that:

1- With six units, you’ll have to get a commercial mortgage at higher rates and shorter amortization. You can get residential type mortgages up to 4 units with 30 year amortization.

2- Most small multiunit construction within the last fifty years in NYC are 5 units and under. The six families are functionally obsolete, many have deferred maintenance and expensive to run. Two BR units are railroad type configuration in most cases. Because of this, the units attract low income immigrant type tenants, many of whom can’t speak English.

3- Compared to many 2 families with 3 units that enjoy lower tax rates, 6 families are taxed at higher commercial rates.

4- Because of these factors, appreciation for these units are much lower, and it does not attract appreciation type investors. And because of the higher taxes, rent stabilziation, higher payments for commercial mortgage, it does not attract cash flow investors either. So what is it good for??

5- Heating costs a fortune. These units were built in the age of cheap energy, and you’ll find hallways and stairwells taking up half of the building space.

BUT you’ll find immigrants buying into them if there is a high concentration of their kinfolk in a particular area. Chinatown NY is an example of an area where competition for functionally obsolete properties drove prices through the roof.

Frank Chin

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many banks will fiance up to 4 units at - Posted by David Krulac

Posted by David Krulac on March 07, 2003 at 17:44:38:

the same terms as SFH. Above that is in the commercial loan area and is at higher interest rates.

Additonally is some locales higher numenr of uitsa re subject to additonal coed/government scrutiny, and rent control.