Entering the World of Multifamily Real Estate
If you’re a landlord with investment properties already, multifamily real estate may seem quite alluring. Benefits like owning a single property with multiple streams of income, having only one site to visit, plus the potential of bulk savings when performing upgrades within units is enough to pique anyone’s interest. So how does one choose which multifamily unit is right for them? The following considerations will help you make an educated decision.
Location, Location, Location
This isn’t just an old cliché, it’s arguably the most important thing to consider when making any type of real estate investment. Buying a property in a desirable area, even if it needs a little work, will pay off far more quickly than a nice building in an undesirable area. If an area is in demand, tenants are more likely to pay a bit more, regardless of what kind of work needs to be done. Once you have a steady cash flow, you can upgrade units to support higher rent prices.
To determine whether an area is desirable, do your research. Check the local school districts and see how they’re rated against others in the area. Investigate the median household income and determine if people can afford to live in your building. Lastly, look around and see what businesses are coming to the area. If luxury shopping centers, quaint cafés and five-star restaurants are moving into town, it looks like your new building is in a fantastic location.
Numbers, Numbers, Numbers
Before embarking on the adventure of multifamily real estate, there are more than a few numbers to consider. First, begin with the easy numbers like the downpayment, interest rate and property taxes.
Next, take a look at the number of units within the building. Take this number and play around with the math. What is the price to income ratio for the area? At an ideal price point, how many units need to be occupied to cover expenses? How many need to be occupied to become profitable? If property taxes are increased, how much higher does the rent need to be? How soon before you build up a financial buffer for repairs and upgrades? This is just the tip of the iceberg. The hypothetical numbers when it comes to investing are endless.
As you can imagine, multifamily real estate is not for the brand new investor, but if done correctly can yield incredible dividends. If you ensure that your new property is in a sought-after area and can become profitable quickly, you’ll be enjoying the rewards in no time.