What To Look For When Investing In Multifamily Properties
When you want to get into multi-family investing, you might notice a difference between multi and single family investing. Window shopping on the weekend is inadequate for these investments, and you’ll have to undergo extensive due diligence. That might include finding a place sub-market-value and communicating with the seller to get the full feel for it.
When we start our search we’re looking for three big things. We want to first find a property, which is an adventure in itself, then we’ll compare the price to similar properties in the area, the short and long term costs, and your income from rent.
We’re working with estimates in doing that. We’re only going to dig into fruitful opportunities by continuing our due diligence when our estimates look gorgeous.
We’re going to look at these main things:
It’s the first step: where do you want to buy? It is the critical factor, so unless you’re looking to dominate a particular area like your childhood neighborhood, search for high-yield and high-growth areas. As bad as it sounds, a gentrified neighborhood is your safest bet, but safety is an illusion anyways. If you have a vision, follow it.
The Total Number of Units
The next step is evaluating the building, including the number of units, and rooms in each. When we start investing, we want to look first to 2, 3, and 4-unit dwellings, as they are “safer” investments with the best return for beginner investors. Anything above four units is considered commercial, which is another realm from residential albeit similar in that it’s real estate.
The Potential Income
When we know what the building offers, we want to know what it’s tenants will. There are sites to help understand rental prices and income in certain areas, and investors should always do their research even if the MLS listing forgets to mention “buyers to do their own due diligence.” We have another blog about quickly determining the income viability of multi-family investments.
When we say there are countless ways to finance real estate deals, we mean specifically that word. When looking at multi-family properties, we even have opportunities for “turn-key” properties where the previous investor is selling a perfectly good asset, all the tenants and calculations included, just because they want to liquidate or something. In a field where making money is literally a matter of “who has the money and who wants to use it,” well, why repeat ourselves.
If you understand your situation then you’ll know where to start looking for financing. Are you going to owner-occupy one unit, do you know rich people who will give you money, do you have the social skills to pitch investors, do you have the ability to manage the property yourself, do you want to start a business around it— what’s you reason for doing what you’re doing and how do you dream it’s structured. Answer that, and you’ll know where to start looking.
Whoever’s selling the place makes a difference in the deal structure, so do your research. As always, you want to know their reasons and motivations. The deals change between banks and different investors because each bank is it’s own entity and each investor is their own person. You will want to know who you’re literally dealing with, and why.