Investing in multifamily rental properties as opposed to single-family rental properties can help expand a portfolio and introduce new financial opportunities. It’s necessary to first understand the potential difficulties that come with renting out multiple-family homes. In addition to being more difficult and expensive up front, purchasing a multi-family home is frequently a longer process than purchasing a single-family rental. But by understanding the fundamentals of investing in multifamily properties, you can successfully transition to your new investment strategy.
Choose a Property Type
There are two primary classifications of multi-family rental properties, which may be the first thing to understand. A multifamily building with four or fewer units is considered residential, whereas a property with more than four units is typically considered commercial. The size of the multifamily property you intend to purchase will, in many ways, influence how you look for, evaluate, and price it. For instance, multifamily properties with four or fewer units are typically financed with residential mortgages, a process comparable to the purchase of single-family homes. Commercial property, on the other hand, is acquired with commercial debt and is priced according to a value formula, not comparable properties. Since purchasing a commercial property might be difficult for those who have never done it before, most landlords start out with smaller multi-family homes.
More Units = More Preparation
Even if you choose to purchase a multifamily property with four or fewer units, more preparation is required than when purchasing single-family rental properties. For instance, the location of a profitable rental property is always a crucial factor. However, for multifamily properties, location can be even more crucial, especially the proximity to public transportation and other amenities. The area’s cost of living, crime rate, and average income level should all be carefully considered. Despite the fact that looking up figures online can be beneficial, they don’t always provide the full picture. This is especially true in places where there have been recent changes (either good or bad). In addition to your other homework, schedule some time to drive through the area and visit the local police station to gain a more comprehensive understanding of the area.
Prepare Your Finances
Before beginning your property quest, you should investigate lenders and organize your finances. Depending on the kind of property you intend to purchase, pick a lender with a track record of assisting investors in doing so. Additionally, you will need to provide evidence of your creditworthiness, such as income and expense statements from your current rental properties. Be prepared to provide additional documentation when asked because you could need them to qualify for a loan on a multi-family property even though you wouldn’t necessarily need them for a single-family property.
Hire the Right People
Having the appropriate professionals on your team is crucial for scaling up to multifamily properties in many ways. For instance, you’ll need to choose and work with a real estate agent who has the necessary training and expertise. Try to discover one that focuses on the kind of multi-family home you wish to purchase. A reputable property management company may also be able to provide you with local knowledge. They greatly benefit the purchasing process and the duration of your property ownership because they are local market experts.
Are you ready to get started? To learn more about our many high-quality services, get in touch with your regional Real Property Management office.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
