When you’re new to multifamily investing, the prospect can be both exciting and scary at the same time. The additional units housed in one building do offer more revenue streams than a single-family home, but they also come with their own unique issues.
A multifamily property comes with its own special set of benefits and potential problems, so here are five tips to help you hit the ground running.
Research the rent
The amount of rent you can get from the multifamily complex is the lynchpin of the entire deal. That rent, measured against the property’s operating costs, is your profit and your cushion.
Check out local ads for units similar to yours to see what the average rent is. Look at how many units are for rent in the same area and what types of incentives are being offered; too many incentives could be a sign of high vacancies. One of the best tools for doing this is a rent survey.
Know your limits
If your money is entirely tied up into your investment, that leaves little room for emergencies. Don’t assume rent will be coming in all the time to cover expenses and unexpected costs. Consider multifamily properties with an investment and operating cost you can handle even if all the units are vacant for a few months.
Check all the expenses
As a multi-unit owner, you’ll naturally have more expenses. Landscaping and snow removal may all be new bills to pay, and there is also water and other utilities you may have to cover. Make sure you have an accurate and clear idea of all the expenses associated with the property you’re considering. The only way to have a realistic picture of the investment is by considering all the variables, particularly expected income and operating costs.
Have tenant plans and policies ready
You need to have a clear plan for attracting tenants to your units and keeping them there, in addition to policies for your rentals and procedures for dealing with problem tenants. Draft all your plans and policies before investing so you’re ready to tackle the property from day one with a clear vision.
Know all applicable laws
Federal, state and local landlord-tenant laws must be followed to the letter if you want to avoid exposing yourself to fines and legal liability. Research and familiarize yourself with these regulations so you know what you can and can’t do before you buy the property.
As a multifamily investor, you will face some new challenges, but the investment can be very much worth it in the end. Research and go in prepared for the best chance at success!
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