How to Successfully Invest in Multifamily Real Estate
As an investor or developer, you may be looking for income options that are streamlined with a high yielding return. Commercial properties are known for such potential, but multifamily property investing can be just as advantageous. In a multi-family property, there is one location that needs your time and attention. Here’s how to make sure such an investment is successful.
A first concern should be the location. Much like buying a house, you need to find
the property that will accomplish what you need but with a price tag that shows potential. Start by researching locations and narrowing down a list before physically comparing sites that you are interested in. Work through your list by considering the asking price, the potential income options, maintenance or renovation needs and the surrounding tenant market.
The Property Value
You can’t really begin to under the value in multifamily property investing unless you are thoroughly familiar the financials concerning the overall investment. You need to know what the mortgage payment is and how your rental income will more than fulfill the monthly obligations. You need a down payment on the total cost of the property, with most lenders asking for between 20-25% of the purchase price. You need to gather price-to-income numbers for your surrounding geographical area, and calculate if you can develop enough rental income to cover the investment. Your gross rental yield is the final profit you bring in each year after obligations are met and rent collected. You also need to watch your cash flow. Will you have money left over once the expenses and payments have been made each month?
When it comes to multifamily property investing, make sure the property is located close to you in a high-yield, high growth area. Look for a place that has been well-maintained and has plenty of unit potential. Ideally you should start with between two to four unit properties. If you take on too many units without a lot of prior experience, you will run yourself ragged and become a poor property manager. This affects long term tenant potential. Look for a motivated seller and negotiate on the cost of the property. You can also find out about additional tax incentives as a long-term positive associated with multifamily real estate.
Take your time and carefully research the investment potential with multifamily leasing, and push forward once you feel you are ready for the task.