Here are some quick tips on investing in multifamily property for those who are new to it…
Have a Strategy
Too many potential investors want to jump into the real estate game too quickly. Once you have decided you really want to invest in real estate, figure out a plan. You should know if you want to buy a two family to live in and rent out the other unit, buy a three family strictly for investment or if you’re looking for a property to convert into condominiums, etc. This will really allow you to know the market because you will be focused on a particular property type, hopefully in a particular geographic region.
Find a Broker with Experience
Searching for and buying investment property is a totally different ballgame than buying a house or a condominium. Many real estate agents don’t understand the investment process and have no experience with it, even if they are really great at selling houses. You should find somebody who knows a deal when they see one and who understands where your perspective. Build a long term relationship with this agent or broker, it will pay off.
Conduct a Market Survey
The building blocks of any investment are the amount of rent you can charge and the potential vacancy rate. It is critical to understand local rental market trends for vacancies and rental rates when buying multifamily real estate. Rental market trends are easy for investors to recognize: Just watch the newspaper or drive around the community noting all rental properties that have vacancies. If you only see a few rent ads or signs, or surmise that rents are increasing, it probably signals a shortage of rental units and a favorable opportunity for you. On the other hand, when lots of rental signs start appearing and rents drop, it could spell trouble for multifamily real estate.
Obtain Financing That Works
Because you will most likely be leveraging (financing) between 70% and 80% of the purchase price of your property, you will certainly want to obtain a loan that the property can handle, so to speak. A lender will want to make sure that the income stream of the property can more than cover the mortgage and all other expenses and that the financial strength of borrower is such that he or she can cover the mortgage payment in a worst case scenario. If that is not the case for you, consider bringing in a partner with greater financial strength or just waiting altogether until you are in a position to do so.
Manage, Manage, Manage
I can’t stress this enough. The ongoing management of the property’s day to day operations is vital to long term success. Make sure that you either have a trusted and experience property manager in place to handle this ahead of time or that you have the time, know-how and ability to do it yourself.
This is just an overview of some things you should keep in mind when considering purchasing investment property. You will want to consult with those who have done it before and build yourself a team. I personally have experience in both investment properties and development and would welcome the opportunity to help you find the right investment for you. So please do not hesitate to give me a call or email to discuss your investment strategy and questions. Good luck!
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