Tips on How to Invest in Multifamily Properties
If you opt to purchase a multifamily property, this can really up your game as a savvy real estate investor who has previously only bought single family investment properties. By doing so, you will be able to broaden your horizons, rake in more cash flow and build your net worth faster.
Value the Prospect Carefully
Bear in mind that a multifamily property is dissimilar to a single family investment because it isn’t valued by its price per square foot. Instead, it is valued by the income and return on the investment generated (ROI). In order to determine its fair market value, divide the net operating income (income generated – expenses paid) by the typical rate of return for a market area (capitalization rate).
Ask for Detailed Paperwork
Be sure that you ask for the income and expense statements for not only the current years, but previous years too. In addition, ask them for current rent rolls, service contracts and all existing reports. This is highly important because you have to ensure that the historical information given matches your expectation of the current operations – and if not, you have to discover why it doesn’t.
Know Your Limits
If all your money is completely used up in purchasing your investment and you have none left over for the case of emergencies, you will run into quite a predicament. It is very important for you NOT to just assume that rent will be coming in on time. In order for you to cover any unexpected expenses, make sure you have some extra cash lying around. Hence, it is vital that you only opt for multifamily properties that have an investment and operating cost that you will be able to manage, even if every single one of your units are left vacant for a few months.
Have Tenant Plans and Policies Ready
You’ll need to have a firm idea on how to attract GOOD tenants to your units and how to keep them there. But asides from this, you will have to get ready rental policies and procedures in order to deal with tenants that bring you trouble. Before you invest in your multifamily property, be sure that you draft all of your plans and policies so that you will be able to take on this project from the very first day with a clear vision in mind.
Know All Multifamily Related Laws
If you wish to avoid any unwanted fines or finding yourself in court, then regardless of whether it is federal, state or local, all landlord-tenant laws, you must familiarize yourself with these laws so that you will be able to know the difference between your rights and the tenant’s rights.