You’ve probably heard that multifamily real estate is a great investment to make. And, it is! But like any other type of investment, there are risks involved. So, before you jump in and buy your first property, make sure you’re aware of what to look for and how to avoid common mistakes.
In this guide, we’ll walk you through some tips and the process of multifamily passive real estate investing so that you can make a wise decision that will benefit you for years to come.
Important Factors to Consider When Buying Multifamily Properties
Like any other type of investment property, there are certain factors to consider when buying multifamily investment properties for sale. So, what are they in particular?
Location
The location of the property is important for a number of reasons.
First, you want to make sure that it’s in an area that is growing or has potential for growth. This will help ensure that your investment increases in value over time.
Additionally, you’ll want to choose a location that is desirable to tenants so that you can keep the units rented out and generate income from your investment.
Condition of the Property
Typically, you should find a multifamily property that is still in good shape. If ever that there are repairs or renovations to be done, see to it that they are, at least, not too extensive or expensive. Otherwise, they could eat into your profits.
So, before buying a property, make sure to conduct an inspection first. And, if you do not have the necessary skills and knowledge for this task, you can always hire a professional inspector to do it for you.
Market Demand
Another important factor to consider is the demand for multifamily units in the area where the property is located. If there is high demand, then it will be easier to keep the units occupied. On the other hand, if there is low demand, you may have a hard time finding quality tenants and end up with vacant units for long periods of time.
To determine the market demand for multifamily units, you can talk to a real estate agent or do your own research online.
Rental Rates
Of course, you’ll also want to know the average rental rates in the area. This will give you an idea of how much income you can generate from your investment. Additionally, it will help you determine whether or not the property is a good deal.
Return Potential
You’ll want to consider the potential return on your investment. This is the amount of money you can expect to make from renting out the units. To calculate the return potential, you need to know the following.
- Purchase price of the property
- Estimated rental income
- Estimated expenses
Once you have all of this information, you can then use a rental property ROI calculator to determine the potential return on your investment.
Zoning Laws
Checking the zoning laws in the area is important because it will determine how many units you can have on a property, thus limiting your ability to expand in the future. For example, if the property is zoned for residential use, then you may only be able to have two or three units. However, if it’s zoned for commercial use, then you may be able to have more units.
Price
Last but not least, you’ll want to consider the price of the multifamily property you are buying. You don’t want to overpay for your purchase, but you also don’t want to underpay.
To determine the fair market value of a property, you can use online home valuation tools or talk to a real estate agent.
Red Flags to Look Out for When Buying Multifamily Investment Properties
Multifamily real estate investing can be a great way to generate income and build wealth. However, there are certain mistakes that investors often make that can lead to problems down the line. Fortunately, you can avoid these pitfalls if you know the red flags to look out for, such as the following.
- The property is in an area with high crime rates.
- The property is in poor condition and will require extensive repairs.
- The rental rates in the area are low.
- There is little to no demand for multifamily units in the area.
If you come across a multifamily property that has one or more of these red flags, it’s best to steer clear and look for another investment opportunity.
How to Search for Multifamily Investment Properties
The best way to look for multifamily properties today is by using a reputable multifamily real estate investing website. Here, you will find a wide variety of options, making it easy to find the perfect investment opportunity.
When searching for multifamily properties on such a site, you can use its search filters to narrow down your options. You can search for properties based on location, price, number of units, and more.
Once you’ve found a few multifamily properties that you’re interested in, you can then request more information from the multifamily real estate investment company running the website. They’ll be able to provide you with additional details about their properties, such as recent rental income and expenses.
Steps in Buying a Multifamily Property
With the information in hand, it is time to buy multi-family real estate for sale. Here are the steps that you can follow.
1. Contact the seller to negotiate the price.
If you’re working with a real estate agent, they’ll handle this step for you. If you’re not working with an agent, you’ll need to reach out to the seller directly to negotiate the price.
2. Get a loan.
If you’re not paying for the multifamily property in cash, you’ll need to get a loan. You can apply for a loan through a bank or another financial institution. Be sure to compare interest rates and terms before choosing a lender.
3. Make an offer.
Once you’ve negotiated the price and obtained financing, you’ll need to make an offer on the property. The seller will then have the option to accept, reject, or counter your offer.
If your offer is accepted, congratulations! You’re now the proud owner of a multifamily real estate property.
Managing Your Multifamily Property
Now that you own a multifamily real estate property, it’s time to start generating income from it. To do this, you’ll need to find tenants and collect rent payments each month.
You can either manage the property yourself or hire a professional property management company to do it for you. If you decide to self-manage, be sure to familiarize yourself with landlord-tenant laws in your state.
Also read: How to Invest 500K in Commercial Real Estate: A Guide for New Investors
Conclusion
Making an informed decision when investing in multifamily real estate is vital to your success as an investor. By following the tips and steps outlined in this article, you’ll be on your way to making a wise investment decision.
Do you have some questions about multifamily real estate investing? Feel free to share them in the comments section below. And, for more useful information on real estate and business, be sure to check out the other posts on our site!