What to Look for When Investing in Multifamily Properties with Realty Exchange
Casual window shopping for real estate on a Sunday afternoon or browsing Realty Exchange’s website to see what it available is nice to do before bed, but multifamily investing requires much more than just visiting your local open house. Investors should conduct their due diligence before investing in a multi-family property; include locating a property below market value and commencing efforts to analyze and assess its financial sensibility. All of this may sound daunting and overwhelming, but lucky for you Realty Exchange’s multi-family investment agents are here to help you every step of the way!
Along with the actual hustle of finding a property, it takes a combination of things to ensure a quality real estate deal. In most cases, the search will begin by locating a potential property. Next you will need to compare purchase prices, short-and-long-term costs, and rental estimates. While this will generally forecast a ballpark figure of what you can expect as an investor, you will need to continue your due diligence and refine those numbers to ensure success. Because investing in multifamily properties requires a little more attention than other real estate deals, your first concern should always be on the numbers. This is where having one of our highly knowledgeable investment agents comes in handy.
These financial figures will not only expose the true value of an investment property but reveal its bottom line, so having a Realty Exchange agent to help you gather and understand those figures is going to be vital to your investments success.
However, numbers aren’t the only thing investors need to be concerned about. If you are looking to invest in a multifamily investment deal, your Realty Exchange agent will help you with the following checklist.
Location is of the utmost importance for real estate investors; even more so when investing in multifamily properties. With more tenants, every unit will need to appeal to renter. The location is generally the most desired criteria. Investors should look for high-growth, high-yield areas where properties are in high demand, well-maintained neighborhoods when investing in multifamily properties. Our Realty Exchange agents know the Saint Louis area very well and can help you find the perfect location for your investment property that will help attract potential tenants.
2. Total Number of Units
The next step is to evaluate the property as a whole. Investors should consider the number of units on the property and the number of rooms in each unit. Here at Realty Exchange we suggest that beginner investors should start their real estate search by focusing on three types of multifamily properties. These include the duplex (two units), triplex (three units), and four-plex (four units). In general, these properties offer the most upside with the least risk for beginner investors and are generally more affordable.
Every situation will differ when financing real estate, especially multifamily properties. As an investor you may choose to live in one unit while renting out the others; allowing you to qualify for owner-occupied financing. This means that the second unit’s income will be factored into the lender’s qualifying ratio. Investors also need to consider their credit score when contemplating financing options as this number will greatly influence the qualifying process. At Realty Exchange, our agents will help ensure that you are shown investment properties that make financial sense for you and meet your specific needs and qualifications.
4. Potential Income
Finally we can start determining the potential income a property can accrue. Realty Exchange agents have many resources at their disposable in order to help you verifying rental prices and income. For those looking to remain more conservative, the 50% rule is a generally recommended. This means you spend 50% of an investment’s income on expenses rather than the mortgage. While this strategy might be too mild for senior investors, it’s a good rule to start with for beginners. Our multi-family investment specialists will be able to help you calculate the potential income verses expenses in order to ensure that you choose an investment property that is going to be the most beneficial and lucrative to you.
5. The Seller
There is one more question we need to ask when evaluating potential multifamily properties: who’s selling the place? The purchase price can vary greatly depending on the seller and their motivation. Therefore, investors must gain an understanding of who they’re dealing with. Bank-owned properties are dealt with differently than for-sale-by-owner properties. This means there’s potential for cost savings. Realty Exchange agents are well versed in dealing with multiple types of sellers. They will help you determine who it is you are going to be dealing with and the best way to approach those potential sellers when submitting your offer.