Business, Entrepreneurship

Buying a Multi-Family Property — Tips for Finding Your Perfect Investment

 

“An investment in knowledge pays the best interest.” ~ Benjamin Franklin.

Acquiring a multi-family property has never been this easy, as the knowledge and stratagem for you to own a perfect investment are just a click away…….

Buying a fourplex, small apartment building or a specialized residential property has similarities to investing in single family rental homes, with important added consideration.

In addition to making the mortgage payment each month, the investor has an added responsibility and associated concern of leasing multiple units and collecting rent from individual tenants. It can be a successful business for some, and can function somewhat like a startup at the beginning.

However, multi-family properties make good financial sense; they are an effective way to grow a portfolio and achieve an above-average return on investment. The cash flow generated by rental payments allows you to put that income to good use in other ways, but investing in multi-family housing isn’t a cakewalk, it’s not for everyone; despite its huge potential upside.

Although some homeowners fantasize about the “live free” benefits of buying a duplex and renting out one side while living in the other, there’s still some hard work to be done.

Below are things you need to know before acquiring a multi-family property:

#1. Small and large multi-family investments play by different rules

A building with four or fewer units is generally considered residential property, while larger buildings are treated as commercial real estate.

#2.  You’ve heard it before — “Location is nearly everything”

Value and rent is  determined by the neighborhood and the “comps” around the corner or down the street. With larger apartment buildings, marketability of the units is of prime concern, but not all high-performing multi-family investments are in prime neighborhoods.

#3. Understand the concepts, and do your homework.

Commercial property, including 12 or 20-unit apartment buildings in addition to urban high-rises, is all about ROI and cap rates, NOI, cash flow and occupancy history.

#4. Financing requirements are substantially different in the commercial world

Interest rates for commercial residential properties often are lower and allow for minimum down payments than warehouse or retail buildings.

#5. Apartments are in demand almost everywhere right now

Both aging Baby Boomers and maturing millennial shows strong desire for renting. That may change, but for the near term, the likelihood of investment success in the multi-family market is high.

Benefits and Challenges

#1. High Prices: Investment in the multi-family market usually isn’t for beginning investors.

#2. High Maintenance: Multi-family buildings, particularly older ones require ongoing maintenance and periodic systems updates.

#3. Management Intensive: The “care and feeding” of multiple occupants can be at least as difficult as the building upkeep. Sometimes much more so.

#4. Short Supply: Even if you’re convinced of the value of multi-family residential investments, you may find suitable properties hard to find. This is where patience and diligence are vital.

#5. Competition: Because the rewards are high, there are also a pack of investors scouting for available deals. But if your competition is not ruled by emotion (as homebuyers often are) you may find this an advantage.

#6. Single Loan: One of the main advantages of multi-family property is that often times, only a single loan is required; no matter how many individual rental units you acquire.

If you have the financial clout, the required down payment and a worthwhile property, you may even find it easier than have to deal with multiple loan applications for a comparable number of individual rental properties.

#7. Single Insurance Policy: No need for individual insurance policies, either.

#8. Business vs. Hobby: Once you move into this level of investment, you have to get serious. If your intent is to build a business, this is the way to proceed.

#9. Control Over Investment: Take care of all details yourself or hire an on-call maintenance person, an on-site leasing manager, a bookkeeper and other practitioners to deal with day-to-day operations. It all depends primarily on the number of rental units your building has.

In Conclusion

As you grow your business, your needs will change. But as an investor in multifamily homes, you retain a lot of control over profitability. An ongoing income stream allows you to alter your net income in at least two basic ways, by raising rents or lowering costs. Making multi-family properties a highly bankable  future investment.

Thanks for reading 🙏🙏🙏…………………..

Author: Justin Havre

Justin Havre, is a well accomplished and trusted name in Calgary real estate. Prior to establishing Justin Havre & Associates, he led Calgary’s largest real estate brokerage, CIR Realty, before moving to RE/MAX First in June 2014. Calgary Real Estate

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2 Comments

  1. I totally agree that location is everything, especially in my case, because I have to be at work really early in the morning every day and surely I’d like to have a house near my work. I am not an expert and I cannot say that I know the market, that is why I think that hiring a professional who could help me and advise where and how I can find my “perfect” house is the best solution. Thanks for the tips, I will follow them and hopefully buy a new house in a couple of months!

  2. Thanks for mentioning that value and rent is determined by the location and neighborhood. My brother is thinking about buying a multi-family home for sale so he can rent it out. If he found one in a good neighborhood, he could charge a higher rent because of the location.

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