JLM Blog | Things You Should Look For in a Multifamily Investment PropertyReal Estate News, Updates, and Tips
Multifamily Real Estate Agency San Diego, CA
Article published on March 28, 2022.
Making the decision to enter the property rental field means taking on a fair amount of risk. You’ll want to consider a variety of factors, especially if you’re renting out a multifamily property. Even when investing in a small building, there are considerations that you won’t find in a single-family property investment. Before making a final decision, use these factors to guide your choice.
1. Property Location
This may be the most important factor for consideration. Renting out a single unit places your concern on what a family or individual will think about the property. However, when renting out a multi-unit property, you’ll need to ensure that it has mass appeal.
Research the potential neighborhood before even looking at the property. You can review crime rates, school ratings, amenities, public transportation options, and more. .These factors will let you know how desirable the location is and the likelihood that you’ll be able to find enough tenants to keep your property occupied.
2. Cash Flow
This is the amount of money that you’ll be putting into your wallet. You can calculate this fairly simply by subtracting the monthly mortgage from the property’s net operating income. What exactly is the net operating income? The NOI is the difference between the estimated monthly income and the estimated monthly expenses.
Keep in mind that most renters are more rough on a place than homeowners. You can expect to pay regular maintenance costs. The cost for upkeep in a rental property, especially a multi-family rental property is going to be considerable over time. Some of the major repairs include heat and cooling expenses as well as the cost of insurance. Review the property to determine it’s overall shape and condition. A newer location will have fewer repairs while an older unit may require more regular maintenance. Use this factor to determine if you’ll actually make money on the unit.
3. Check Capital Improvements
A capital improvement is simply an upgrade to the property that will enhance its value. Depending on the property you purchase, you may want to make a lot of these improvements or none at all. If you’re purchasing a property that’s not in good shape, it’s well worth making these improvements although it will increase your initial cost. Review the local real estate market to determine what’s important to renters in your area. For some, having touches such as marble countertops or hardwood floors can make a big difference. There may be other improvements like adding a fence to the property, having a playground on-site, or updating the appliances. Make the decisions on what improvements you’ll make before purchasing to determine the cost of these upgrades and if they’ll be worth the cost.
This is the final although possibly most important thing you should look for when purchasing an investment property. Home prices in California aren’t cheap, even when the property is not in good shape. To determine if you’re getting a good deal, look at the cost of similar units in the area. This will give you a starting point on what you should expect to pay in a certain location. Multi-unit homes are usually going to cost more in general so be prepared for that. However, you may have a price limit on what you can pay. The price will also depend on how many units are in the building. More units means more income for the buyer but also typically a higher price tag.
The real estate market is competitive but there are not as many buyers when it comes to purchasing multi-unit properties. If you’re interesting in getting started in real estate investing, this may be a good option. Consider starting with a home that has several units and you can work your way up to larger properties or more properties if desired.
Real estate investing can be tricky but by taking these four considerations into your purchasing equation, you’ll be more likely to end up with a great investment property. There are many factors to consider but these guidelines will help you to get an idea of what elements are essential. Having a great property to bring in additional income is always possible when you take the time and effort.
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