Investing in a multi-family property can be an exciting opportunity with promising returns. It offers unique advantages that aren’t possible through a single family home investment.
But as with any other type of investment, it can be risky if you don’t know what you are doing. That’s why, in this article, you’ll learn 8 tried-and-proven tips on multi-family investing from the pros.
Tips on multi-family real estate investing
Tip #1: Choose your location wisely.
Location, location, location – it’s the real estate mantra. Buying in high demand areas is undoubtedly the pathway to property investment success.
Your preferred location should be near establishments like hospitals and schools and be close to public transit.
Once you’ve chosen where to buy a multifamily property, talk with the locals. This will help you to get a somewhat realistic take on the area’s pros and cons.
For instance, you might have read about a new community project. You can get to know what the locals think about it. Will it be good for the community?
Tip #2: Set financial goals before buying.
Setting financial goals for your property investment may seem tedious. However, it’s crucial for your success. Aside from setting your goals, you should evaluate the multifamily unit. To start that off, you must choose which financial metric to use. There is an internal rate of return (IRR), cap rate, gross operating income (GOI) as well as many others. If you need help finding which metric is right for you, click here.
Next, you’ll need to decide what is more important for you. Is it the current return or the property’s appreciation? Once you figure all these things, set a blueprint on how you are going to achieve them.
Tip #3: Know the area’s rental market.
Before buying multi-family real estate, it’s in your best interest to know what the area’s rental market is like. The last thing you want is to invest in an area that prospective tenants find unappealing.
So, how are you supposed to determine whether your multi-family investment will be viable or not. Well, you need to do research on the area’s rental rates and average vacancy. This information existing in newspaper classified ads, online rental listings, or by visiting the community itself.
Tip #5: Determine the best rental price.
Setting the right rent can be a bit of a Goldilocks Paradox. If you charge too much, you risk having little inquiries. If you charge too little, you risk leaving money on the table.
The right rent price is beneficial in a number of ways. Not only will it help attract the right tenants, but it’ll ensure that your rental business succeeds.
You should pay attention to the competition. Focus on multi-family rentals in the area that are similar to yours. From there, you can compare the units and their rental rates. Compare things like the square footage, updates, and surroundings.
You can either do this yourself or hire a realtor to do it for you.
Tip #6: Screen all prospective tenants.
Bad tenants miss payments, damage property, and can be downright miserable to deal with. To avoid tenant problems, you must screen all your prospects.
Screening should begin the first moment you make contact. Whether it’s through a phone call, a text, or even via email.
Having a set of pre-screening questions prepared can help weed out bad tenants beforehand. For example, it’s good to find out if they own pets in case you have a “no pets” policy in the lease. Of course, service pets are allowed following the Fair Housing Act.
Some of the questions you can ask prospective renters are:
- “What’s your reason for moving?” - Look for reasons such as wanting more space and changing jobs.
- “When do you intend to move in?” - If it’s very soon, it may be an indicator that the tenant isn’t responsible. Responsible renters usually start their search well in advance.
- “How much is your monthly income?” – It is best if a renter is making at least three times the rent amount. For instance, if you charge $1,200 for rent, then look for renters making at least $3,600/month.
- “How many people will be living with you?” - When it comes to the number of occupants, the lesser the number the better. Among other things, more people generally create more wear and tear.
Once you have shortlisted the number of applicants, the next step is to:
- Perform a credit check. A renter with a good credit score shows they are responsible as regards to their finances.
- Contact their previous landlords. This will help you get a real sense of the tenant.
- Contact the tenant’s employer. Verify whether the renter is employed where he or she claims to be employed.
Screening all prospective tenants will help ensure that your multi-family property gets the right occupants.
Tip #7: Make your multi-family property attractive to tenants.
Ever wondered why some properties are rented within days and others sit vacant for weeks on end? More often than not, it all boils down to how desirable a property is.
The more desirable it is, the less time it’ll take to get it rented. But, the less desirable it is, the longer it’ll sit vacant. It goes without saying that a vacant rental property generates no rental income.
The following are some tips to help your multi-family real estate stand out:
- Paint: A fresh coat of paint and your property’s appeal will instantly rise.
- Clean-up and repair: Imagine the standards that you have set for your own home. Good quality tenants will not settle for a less-than-superior property.
- Curb appeal: If you want your rental property to stand out, you must focus on revamping its curb appeal. Some flowers are always a good idea. https://www.pinnaclepmc.com/blog/include-rental-agreement-torrance-california.
- Details: These are the little things that nobody thinks about – except your tenants! So, pay attention to things like your home’s décor, hardware, and furniture appliances.
Tip #8: Hire the right team.
Being a landlord is a team effort, especially when you have multiple tenants to manage. As such, you need to have the right team of real estate professionals if you are investing in multi-family homes. The team should include people that will help keep your property in top-notch condition, solve legal problems, secure reliable renters, and help balance books.
There you have it. Eight tips on multi-family real estate investing. Remember, having a successful multi-family property investment requires a lot of time, effort, experience, and knowledge. If you don’t have these, please consider hiring a property manager.