A multi family property complex could be a wonderful real estate investment. As a long-term investment, apartment properties can offer a great source of regular rental cash flow, along with tax benefits that can make the deal much more lucrative at tax time. Alternatively, you're also providing another place for families to stay that can be a excellent home, if you take care of the property effectively.
But, purchasing multifamily properties is not necessarily as fundamental as purchasing a condominium, townhome or single-family house. There are several key factors which make this real estate purchase a a bit more difficult. The following are some key strategies that will help to simplify your multifamily buying experience:
1. For Sale Sign - Most of the time, you won't come across a for sale sign in front of multifamily complexes that are on the market. These signs have a way of making the current renters concerned. They might panic and choose to move quickly, to avoid the changes that could come with having a new landlord. This raises the vacancy rates, which brings the value of the property down.
2. Private Searches - When searching for a multifamily property to invest in, the best longterm option is to employ a real estate broker or search the internet. Once you find something intriguing, get in your car and drive by the building. Make sure you drive by during the day, so that you can view the physical condition of the buildings. Then, you need to pass by at night too. This will give you a good idea about how the area, tenants and complex are when they think nobody is looking. If you like what you see, call your broker to see if you can see a number of the units or inside the building.
3. Check the Numbers - This might be probably the most crucial thing to evaluate. You should check the rent roll and expenses and determine the net operating income. This basically shows just how much earnings are left for you and establishes the capitalization rate of your purchase. This is also important if you plan on getting a multifamily mortgage loan as all lenders evaluate the rental revenue and expenses to compute the debt coverage service ratio.
4.Inspect the Property - Be thorough about your inspection. Check out a handful of the empty rental units to determine how they have been maintained. Walk throughout the grounds, looking at parking areas, the pool area, landscaping, building structure, etc... Ensure the complex has been managed properly. If you are after to purchase a “fixer-upper”, you need to be sure that the restoration project won't cost you over what the building may be worth market-wise, or monthly rental income-wise.
5.REOs and Foreclosures - Be sure to explore multifamily complexes that are bank owned. REOs and foreclosures is often a fantastic way to get rental income property at a great price. Banks are not in the business of renting out and dealing with property. Foreclosed properties tend to be more of a frustration for creditors than anything. Consequently, most of these properties don’t have high occupancy rates and not operationally solid and thus tend to be more difficult to finance for these distressed assets.
There is no such a thing as a pre-qualification for apartment properties as is with houses or duplexes. Nevertheless, you should go over your potential investment with a lender or commercial loan broker to be sure net operating income of the real estate is sufficient for that downpayment that you will be likely to invest. You can even make certain that the lender is accepting your current financials.
This is frustrating for many investors to check with several banks and many don't even know enough multifamily lenders that specialize in this asset class. Therefore it is suggested that investors engage a multifamily mortgage broker so they have larger choice of capital providers.