Questions to Ask When Purchasing a Multifamily Investment Property
Multifamily real estate properties can be a great investment offering you a steady stream of income and diversification of your portfolio. Multifamily properties typically offer a potential for a higher return on investment than single-family homes and also withstand the pressures of a recession better than a single-family home. Of course, multifamily properties also require more capital up front with a larger down payment and higher monthly mortgage payments. Here are some questions that may help guide your decision.
Are you Prepared for a Multifamily Property?
Setting realistic expectations before diving into a new real estate endeavor is crucial. Take a look at the market and speak with others who have experience with multifamily properties to determine if a property of this caliber would help or hurt your portfolio. Always be honest with yourself. Evaluate your goals, risks, finances, and your current situation as a property owner. Taking all of this into consideration will help you to make the most informed decision before taking on a new sector of the real estate industry.
What is Your Budget?
Now that you’ve decided that you are ready to invest in a multifamily home, set your budget, and be liberal with your number so that you are not faced with any financial surprises. You’ll want to consider the down payment, closing costs, property taxes, insurance, management fees, and possibly maintenance or funds to put toward upgrades.
What Kind of Multifamily Unit Are You Looking to Buy?
There are several kinds of multifamily properties including duplexes, triplexes, apartments, and more. Each is uniquely run and managed, so it would benefit you to do some research on the pros and cons of each multifamily property type to make an educated decision. Consider scalability, rental income, property maintenance, tax implications, etc.
Where Are You Looking to Invest?
Research the market of each area you are interested in. Check out the demographics of people who are predominately renting in that area. If you’re looking at a booming tech city like San Francisco filled with young, single, professionals, an apartment building with multiple studio units may be a great investment opportunity. If you’re interested in a more family-oriented suburban neighborhood in an area like Tacoma, Washington, a duplex or dual-family home might be a better investment option since it appeals to the renters in that area. Ideally, you want to find an area with a high demand for multifamily properties.
Does My Real Estate Agent Specialize in Multifamily Properties?
Working with a skilled and reputable agent who has expertise in this area of real estate can make for a successful experience and purchase. Your agent or real estate firm that you choose to work with should be able to offer insights into the desired area and the market while guiding you through the entire process from viewing and vetting properties, to making an educated offer and closing the deal.
Do I Need to Hire a Property Management Company?
The work doesn’t end once you’ve purchased the property, in fact, it has only just begun. As the name suggests, a multifamily home contains multiple units with multiple tenants which means more maintenance orders, more rent collections, more paperwork, etc. This is where a reputable and experienced property management company can come in to make your job simpler. The pros and cons of working with a property management company depend on many factors and your individual situation. A property management company will handle screening, advertising, maintenance, and accounting ensuring that your tenants are taken care of and that you are shielded from unnecessary liability.
