Investing in a multi-family property is a great way to begin a career as a real estate investor. There are many ways to make this prospect even more lucrative, some of which you may not have considered. By implementing a few suggestions, you can build wealth faster and benefit from your investments sooner.
Occupy One Unit
By living in one of the units and renting out the remainder of units, you can cut down on your own living expenses. Additionally, you may be able to qualify for special financing programs, since you’ll be a buying the property as a residence. This can qualify you for FHA loans, for instance, which aren’t as demanding in regard to down payments.
Ask for Copies of Records
Learn the history of the investment property to determine if it really will be a lucrative investment. Income and expense reports from previous years can give you an indication of how profitable the property has been for previous owners. Also find out about the vacancy rate in the area to determine if the property will be difficult to rent out. It will do you little good to buy a multifamily home, if you’re going to have difficulties in keeping tenants.
Keep a Petty Cash Fund
It goes without saying that repairs go along with home ownership and a larger multi-family home means you’ll have more than your share of repairs. For this reason, make sure you keep a savings set aside just for repairs to the property and continue to add to that account as you go. Finance experts recommend taking 10% of each rental payment and adding it to your savings. This will help to cover repair expenses, late rental payments, and unexpected vacancies.
Ensure You’re Getting the Value You Expect
In buying a single family home, the price is often a good indication of the property’s value. However, in terms of rental property, the value is the income it will provide. Before you buy the property, determine how much you’ll reasonably expect to earn from rent and if you’ll be able to keep the units occupied.
Additionally, compare that expected income to the expenses you expect to pay out in repairs, taxes, and other issues related to the upkeep of the property.
Evaluating your investment is an important step in the process. It helps you make a realistic determination about the income you can expect to earn from the property. This is especially true of a multifamily home, where you’re relying on several tenants to keep the property generating enough money to be worth your time and effort.