A multi family apartment complex is often a superb real estate investment. As a long-term investment, multifamily buildings can offer a great source of regular rental income, along with tax incentives that can make the deal even more lucrative at tax time. Alternatively, you’re also providing another place for families to live that can be a high quality home, if you take care of the property properly.
But, acquiring multifamily apartments is not essentially as simple as investing in a condominium, townhome or single-family house. There are a few key factors that make this property purchase a somewhat more complicated. The following are some key strategies which will help to streamline your multifamily buying experience:
1. For Sale Sign – More often than not, you do not find a for sale sign in front of multifamily complexes that are for sale. These signs have a way of making the existing renters worried. They might panic and decide to move quickly, to avoid the changes that may come with having a new landlord. This raises the vacancy rates, which brings the value of the property down.
2. Private Searches – While searching for a multifamily property to invest in, the best option is to employ a real estate agent or look online. Once you discover something interesting, get in your car and drive by the property. Be sure to drive by during the day, so you can see the physical condition of the buildings. Then, you want to pass by in the evening as well. This will give you a good idea about how the location, tenants and complex are when they think nobody is looking. If you like what you see, get hold of your realtor to see if you can view some of the units or inside the building.
3. Check the Numbers – This can be by far the most crucial thing to evaluate. You ought to look into the rent roll and expenses and determine the net operating income. This essentially indicates just how much earnings are left for you and establishes the capitalization rate of your investment. This is also important if you’re planning on getting a multifamily mortgage loan as all lenders evaluate the rental earnings and expenses to determine the debt coverage service ratio.
4.Inspect the building – Be meticulous about your inspection. Check out a couple of the empty rental units to determine how they have been taken care of. Walk throughout the property, looking at parking areas, the swimming pool, landscaping, building structure, etc… Ensure the complex has been maintained properly. If you’re looking to buy a “fixer-upper”, you should be sure that the repair project won’t cost you more than what the building may be worth market-wise, or monthly rental income-wise.
5.REOs and Foreclosures – You should definitely check into multifamily complexes that are bank owned. REOs and foreclosures could be a fantastic way to get investment property at a great price. Mortgage lenders are not in the business of renting out and managing property. Foreclosed properties tend to be more of a headache for financial institutions than anything. Therefore, these types of properties don’t have high occupancy rates and not operationally stable and hence are more difficult to finance for these distressed assets.
There’s no such a thing as a pre-qualification for multifamily properties as is with houses or duplexes. Nevertheless, you should talk about your possible investment with a lender or commercial loan broker to be sure net operating income of the building is enough for that downpayment that you’ll be planning to invest. You also can make certain that the bank is accepting your overall financials.
This could be mind-boggling for most investors to check with several banks and many don’t even know enough multifamily lenders that specialize in this asset class. Therefore it is recommended that investors employ a multifamily mortgage broker so that they have broader range of capital providers.
About Author: Judy Pecoraro is a real estate blogger specializing in foreclosure and real estate investment. To read more of Judy’s articles, please visit http://www.900flat.com/blog/category/real-estate-2/investing