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Purchasing
a multi family property can be an important first purchase in your real estate
portfolio. By doing this you will produce more income and build your net worth
faster. As an investor you may be interested in adding to your real estate
portfolio and creating larger yearly rental profits. Keep in mind buying a
multi-unit will require increased responsibility, liability and usually more
capital reserves. Below are some tips to help with your due diligence and decision-making.
Choose
the right professional to help guide you through the process. Buying a multi
unit can be overwhelming and having a broker who is qualified and experienced
in investment property transactions will make your purchase seem a lot less
stressful. An experienced broker should have knowledge of local rental markets,
physical aspects of buildings, be able to understand the financials and explain
cash flow analysis.
Consider
starting out as an owner-occupied investor. If you purchase a building with two
to four units you will qualify for owner-occupied financing, requiring a
smaller down payment. If the property is the right investment, the other units
should help cover the expenses, allowing you to save money and keep your debt
to income ratio lower for your next real estate investment.
Make
sure to ask for all relevant documentation, current rent amounts, lease terms,
utility expenses and any building maintenance costs. You should also become familiar
with the vacancy tendencies in the location of the property. You don’t want to
purchase a building and have lengthy periods in which your units are vacant. As
a landlord you will need your leases to be sound and protective of you and your
investment. It is a good idea to have an attorney look over your lease to make
sure you are legally protected if any tenant related issues arise.
A
multifamily property is not valued the same as a single-family property. A
multifamily property is valued by its income and return on investment
generated. You will need to consider the income and expense of the building and
what is left over, this is called the net operating income. To determine your
cap rate, you divide your net operating income by the purchase price. Generally
speaking, four percent to 10 percent per year is a good investment.
You
should keep adequate cash reserves. Unexpected events occur all the time when
being a property owner. These events can be very expensive, especially if you
own a larger rental property. The general rule of thumb is that you should have
enough cash set aside to cover 2-3 months of mortgage payments. Many investors
also hire property management companies. This may be appealing if you do not
live in close proximity to your property. The fees for a property management
company range from three percent to 10 percent of the rental income.
I have
successfully helped many clients buy and sell investment properties during my career
as a real estate broker as well as owning personal investment properties. Whether
you are a first-time homebuyer interested in owner occupied properties or a
seasoned investor, I have the skills and knowledge to facilitate your
transaction. Feel free to contact me anytime to learn more about investment
properties.
Katie
Kinney, Broker Landing Real Estate
Cell ~
603 205 2276
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