INVESTING IN MULTIFAMILY REAL ESTATE

Real estate is a great way to invest your money and grow your wealth. Taking that up a level, a multifamily real estate investment gives you a continuous source of income to pay the loan payment by renting out the livable spaces to tenants that will sign a lease and pay the same monthly payment to stabilize your revenue stream whether the property markets increase or decrease. Some multifamily real estate investors will look to buy properties that need to be remodeled, but can buy them at a really great price. They then perform the needed repairs and upgrades and sell the property for a huge profit, or they decide to lease the units to new tenants. Others buy multifamily properties to earn monthly income buy buying complexes with separate units like apartment buildings, townhomes, condominiums, and homes with multiple apartments. Multifamily rental properties are usually easier to finance due to the continuous income revenue stream provided by the current tenants paying their monthly rent.

Investing in Multi-Family Real Estate Properties

Investors can earn additional sources of income by investing in rental properties. With multifamily properties, this gives you economy of scale, having multiple revenue streams from the same complex. In most real estate markets, the value of the property will steadily increase over time, which gives you more buying power to purchase additional properties and continue to grow your wealth. The difference between single family and multifamily properties is just like it sounds. A single family property is a residential building with only one unit to rent, where multifamily properties have more than one unit to rent.

Types of Multifamily Properties

• Apartment Buildings and Complexes • Condo or Condominium Complexes • Townhome Complexes • Mixed Use Properties - Combining Residential & Commercial Unites • Low Income Housing • Retirement Homes • Duplexes • Triplexes As you start to think about buying a multi-family property, there are a few things you should consider, including the cost, location, property type, improvements that may be needed, and the total number of units involved.

1. Multifamily Is More Expensive - But Easier to Finance

Buying real estate is an expensive investment. Buying a single family home can be time consuming, and a little stressful. Buying a multifamily property is even more expensive, and can also be more stressful. A multifamily complex can cost up into the millions of dollars, especially if it is located in a nice and highly desirable location. There are more things to consider before you find the perfect place to buy as compared to just buying a single family home. You will need to look into rules about zoning and vacancy rates, cost of repairs, and monthly expenses such as utilities that can also be expensive. Another thing to think about is your financing options. If your multifamily complex has five or more units you will have to get a commercial property loan from a lender. You will need to provide documents to the lender that may include rent rolls and a letter of intent (LOI). Your lender will run a credit check, and to qualify for a standard loan you will need a credit score of atleast 640. They will want to verify that you have a low debt-to-income (DTI) ratio, and some money in the bank to show that you will have no issues paying back the loan. There are also hard money loan options for those with less than good credit as well, but those will cost a little more in interest rates. The good thing about multifamily real estate is that they are a good source of consistent monthly income that can pay for the loan. If you are buying a complex that has a high occupancy rate, this will help you when you can show that to the lender to help in their decision on whether to fund the loan. It could also help you if you decide that you will rent one of the units yourself as well, as banks do feel these loans are less risky if the owner occupies one of the units. This may get you a lower interest rate for the property loan.

2. Growing a Multifamily Property Portfolio Takes Less Time

Multi-family properties are the best choice for investors that want to build a large portfolio of rental units. You can start our small by buying a smaller five to ten unit apartment or condo complex. Giving you five to ten monthly rents from your renters. This is so much cheaper than buying five to ten homes to get five to ten renters. As your fill up your complex with renters, and can show a strong monthly rental income, you can continue to grow your investment portfolio and buying another complex, maybe even a larger complex. Buying properties this way takes a lot less time with a lot less headaches because you only have one property to complete the inspections on. You would just have the one unit, so the inspections and purchase process would go quicker as well.

3. Does Property Management Makes Financial Sense for You

Some real estate investors like to manage their own properties, but some like to hire a property management company to manage it for them. A property manager is definitely a good way to save you time and stress, but it will add to the costs of your multifamily property. It can be difficult to deal with your tenants, staying on top of collecting the rent, performing repairs, and paying your portion of the utilities. It may be a good option for you to hire a property management company to handle the daily operations and save yourself from the unnecessary stress and give you back your valuable time. If you hire a property manager, they will usually charge you a flat monthly fee that comes from a percentage of the monthly income that your property generates. Property managers will usually do the following things for you as part of their service: • Finding and screening potential tenants • Running credit checks on potential tenants • Collecting rent payments from your renters • Overseeing repairs on the property • Paying expenses like utilities for the complex • Handling compliance, regulation issues, and inspections • Evicting tenants when needed • Handling noise complaints • Security for the complex Hiring an external property manager definitely makes sense if you own a large complex, or multiple units. It may not make sense for you if you only have one smaller complex. As you grow your multifamily property portfolio it definitely makes sense as you make more money to be able to pay the added cost of hiring a property manager for the peace of mind, and less stress in your daily operations.

4. The Fifty Percent Rule for MultiFamily Investments

The fifty percent rule is a guideline used by multifamily real estate investors to quickly estimate the profitibablity of a rental unit that involves subtracting fifty percent of your property’s monthly rental income when calculating your potential profits. The idea behind this is that fifty percent of your rental income should be designated to expensides and you should not include this amount when comparing potential profits against your monthly loan payments. The reason for using this rule is that multifamily real estate investors sometimes make mistakes when evaluating their potential new property purchase because they understimate the cost of expenses. This leads to lower profit margins, and can make you unsuccessful in your new investment endeavor.

5. Getting A Loan for A MultiFamily Property?

Getting a loan for a single family home is very similar to the process to get a loan for a multifamily unit. The bank or lender will run a credit check on you and they will want to see a credit score of at least 640 to give them confidence that you will be able to pay back the loan. You will need to meet the lender's debt-to-income ratio requirements. They will want to have the property appraised. They may ask you to submit the rent rolls to show them how much money you expect to make each month from collecting the rent. They will also want to see your lettter of intent (LOI) that you submitted to the seller.

6. Why Should I Invest In Multifamily Properties?

Single family homes give you just one source of income, and the amount is not that much more than just one of your units in a multifamily property. With a multifamily property, you get several units to get multiple rent payments, one for each unit that is rented. Whether you are interested in large apartment complexes, condos, townhomes, duplexes, or triplexes, there are lots of different options available. Both types of rental properties can provide a steady stream of rental income, but multifamily properties give you higer income potential because of the number of units involved. There is also less risk to your income each month because if a single family home becomes vacant you have zero income, but if a few of the units in your multifamily property become vacant you are only going to lose out on the rental income from the specific vacant units. The costs for maintenance, repairs, and landlord required utilities are less on a single family home than they are on the larger multifamily complexes.

7. How to Start Investing In Multifamily Properties

Let’s take a look at how you can start investing in multifamily properties and grow your investment portfolio, and your wealth.

Step 1 - Find A Multifamily Property to Buy

When looking for a new multifamily property purchase, location is one of the most important factors to consider. You want to find a property that is located in a nice town, in a nice part of town, so security concerns won’t keep you up at night, or put you at risk when you visit your own properties. The nicer the area, the more expensive the property will be, but the more money you can collect in rent, and the more people will want to rent one of your units. You will also want to do you own research for the area you find a potential property to buy. You should look on websites that have rentals listed, to see what the going rate is, to show you also if rentals are in high demand. A good place to start your analysis is to look at the zillow rentals website. A second resource you can use in your analysis is to do an internet search for your city, and include the words “property management” to take a look at what some local companies are listing their available rentals for.

Step 2 - Choose A Multifamily Property Loan

Another thing to consider is whether you can find the right loan to be able to buy a new multifamily property to invest in. Some lenders will only loan on units of two or less, like a single family home or a duplex. But there are lots of lenders that will lend money on the larger units. You may be able to get a better loan rate if you plan to live in one of the units, so you may want to consider that as an option. It’s a good idea to check your favorite local banks for a loan option, but you should also check online as well so that you can find the best lender with the best rates to maximize your profit potential.

Step 3 - Make An Offer

It is a good idea to hire a qualified commercial real estate agent to help you through this full process of finding, viewing, and buying a new multifamily property. Once you find the right property, you should work with your agent to tour the property to make sure everything looks great in person. Once you know you want to buy the property, your next step is to make an offer on the property through your agent. Your agent will meet with the selling agent and discuss the offer. The real estate selling agent will then present the offer to their seller. They may accept your offer, or they may make a counter offer, and the process continues.

Step 4 - Move Towards the Closing Process

Your agent will work with the selling agent to get the necessary paperwork completed, have inspections completed, and continue to move the deal forward until it closes and you take ownership, or posession of the property.

Step 5 - Start Running Your Property

Now you can buy insurance, line up your property management company, or service providers for maintenance and repairs if you will manage them yourself. You should communicate with your existing tenants by sending them a letter, or going door to door, or both, to let them know that you are the new owner and provide them with any changes in contact info if they have any emergencies, or need any repairs. Your property management company will probably handle this part if you use one. Now that you own the property you can work to make sure all units have tenants, and all repairs and maintenance gets done. Start researching your new rental market and identify areas to increas your profits by reviewing the current lease for each tenant and identify any that you may want to make a plan for doing any rent increases, if that is an option for your property, to increase your income. This is a careful balance though, if you raise it too high you may lose tenants, and make it harder to find new tenants as well. You really need to learn the laws at a federal level, and local level, to understand any limits you may have such as one state I know of that has a ten percent per year cap on rent increases. You should also take the time now to learn what problems you may encounter, such as evicting tenants, and what you need to do when they won’t leave when you have evicted them.

Our Picks for the Top Multifamily Rental Markets

1. Los Angeles, CA 2. Seattle, Tacoma, WA 3. Boston, MA 4. Minneapolis, St. Paul, MN 5. Oakland, CA 6. San Jose, CA 7. Portland, OR 8. San Francisco, CA 9. New York City, NY 10. San Diego, CA 11. Sacramento, CA 12. Lake Tahoe, CA 13. Roseville, CA 14. Folsom, CA

In Conclusion

Just like the stock market, the real estate market gives you an opportunity to grow your wealth. Real estate investors typically own a several different rental properties. A great option of the type of rental properties that you can add to your investment portfolio is a multifamily property. This gives you access to easier and better financing options from more sources, and helps you grow your rental property portfolio much quicker, which can give you the revenue you need to be able to hire a property manager that can take care of the day to day operations of your rental property to give you more of your time back, and give you less stress.

Buy or Sell A Business - Buy or Sell A Multifamily Property

If you are in the market for buying, or selling, a business or commercial property, or even looking to expand or get a new lease, Michelle Mendenhall, with EXP Commercial, is a great resource for getting it done. She can help you find and buy, or sell, a multifamily property to add to your real estate rental portfolio. Michelle Mendenhall Professional Business Broker, IBBA Commercial Real Estate Sales & Leasing Associate Phone: 916.459.7526 DRE #02116152 LocalGirlGoesCommercial.com michelle.mendenhall@localgirlgoescommercial.com michelle.mendenhall@expcommercial.com At ViralStudioX, we highlight products and services that you might find interesting. We frequently receive free products from manufacturers to test. This does not drive our decision as to whether or not a product is featured or recommended. If you click a link on this page, then go on to make a purchase, we might receive a commission – at no extra cost to you, and does not impact the purchase price of any products that you may purchase.