When looking for your real estate niche, one good option is Investing in Multi-Family Properties in . In this post, we offer a few things investors should be aware of before buying duplexes, quads, or an apartment building in .
Do you want to diversify your real estate portfolio? Investing in multi-family properties in is a great way to do it! With one transaction, you can quickly be the proud owner of several rentable units, all of which can provide you with a steady income each and every month. Before you jump into multi-family real estate investment, there are a few things you should know. Here are 5 things you should know about investing in multi-family properties in .
Finding The Right Tenants
As a landlord, your primary goal is to secure a long-term tenant that will be able to pay their bills on time with little to no fuss. Ideally, you don’t want someone who is going to complain every time they hear a noise in another unit or footsteps going up the stairs. They should be reasonable, easy-going, yet quick to report a problem should something be seriously wrong. Looking for compatible neighbors, respectful people, and tenants who want to stay long-term is the ideal situation for any landlord.
You’ll Have Unique Repairs
Making repairs to a multi-family home or apartment building is a bit different than repairs to a single-family home. For example, if flooding occurs, it could damage many units, thus meaning more repairs and a larger dent in your rental income. You will have to deal with multiple uninhabitable units, which means less money coming in the door.
Many investors will allow for at least 5% of your profits to go toward routine maintenance and anther 5% to capex expenses including painting, roof repairs, etc. That said, you’ll be able to make these repairs much easier. For example, replacing the roof on a 12 unity apartment building will be much less expensive than replacing the roofs on 12 single-family homes.
Before you buy a multi-family property in , make sure you understand the condition and what it will cost to attract the right tenants and quickly get the property rented out.
Disputes Between Tenants
What happens if there is a disagreement between tenants? How will things be mediated and rules be enforced? All of this should clearly be outlined in your lease along with consequences for violating the rules put in place. You will need to create a plan for yourself to handle these sorts of issues. Hopefully, most disagreements can be handled peacefully, but you may need to enlist the help of a professional mediator if you find yourself caught in the middle of a dispute that is getting out of hand.
Neighbor troubles often snowball and you will find that are complaining about every little thing. You’ll want to try to settle the dispute as quickly as possible to keep the peace in your building and for your other tenants.
Living There Can Help
One “hack” new investors often use, is to buy a multi-family property in , and live in one of the units themselves. This will allow the investor to buy a multi-family property of 4 units or less using an FHA loan. An FHA loan has a much lower interest rate than the other loans you can get to purchase an investment property.
There are some strings attached to an FHA loan, however. One of those being that you need to live there yourself for a while before you are able to rent out the whole building. While you may not like the idea of moving into a multi-family property, in most cases, the rent from the other tenants will pay off your loan, allowing you to build equity while living for free.
Know Your Numbers
Before making any investment, you’ll need to do the math. Make sure you understand the expenses and the income generated by the property. What you have left after paying the bills is your net operating income. You should also understand the cap rate, the local vacancy rate, and the rate of return. Make sure to get it all on paper from the previous owner so you know exactly what you are walking into. If you know the vacancy rate, for example, you will know how many units you need to have occupied at any given time to turn a profit.
Before you buy a multi-family property in , make sure you have run the numbers and done your homework. Investing in multi-family real estate can offer less competition and a higher rate of return when the right properties are found. Our team can help you find the best multi-family properties for sale in !