How To Buy A Multifamily PropertyTetyana Artemova
Most property investors consider buying a building with multiple units. The allure of multifamily investment properties lies in their ability to diversify one’s financial holdings, generate additional income, and even serve as one’s primary residence. Buying a multifamily building can be pretty profitable if you are prepared to put in the time and effort required for such a long-term investment.
To supplement their monthly income while also seeing their portfolio value rise gradually over time, many investors choose to put their money into rental properties. Single-family homes and apartment buildings are the two most common options for residential real estate investments.
In contrast to multifamily residences, sometimes known as apartment complexes, which typically contain multiple units available for rent, single-family homes only contain one such dwelling unit.
What is a multifamily property?
A multifamily dwelling is simply a house that has more than one apartment or room.
Any structure with two or more households sharing a single lot is considered a multifamily dwelling. This practice, known as “house hacking,” is common in residential multifamily buildings with two, three, or four units and allows the owner to live in the building while still renting out the other units.
Generally speaking, commercial properties have five or more units, whereas residential ones have four or fewer. It is vital to make this distinction for lending purposes because the laws for lending on residential multifamily properties differ from those on commercial ventures.
Finding, assessing, financing, and managing bigger multifamily properties may differ from smaller ones for reasons beyond only finance. Because of this, most first-time multifamily investors begin with single-family homes before moving on to larger multifamily acquisitions once they’ve gained experience.
Types of multifamily properties
Multifamily dwellings come in a wide range of styles, each with its unique set of advantages and disadvantages.
A duplex is a type of multifamily dwelling in which two or more dwelling units share a common wall, ceiling, or floor. As the name implies, a triplex consists of three units. In a duplex or triplex, each dwelling unit has its own front door. Some of the units may even have their own private yards and garages.
Condominiums, or “condos,” are residential apartments owned separately from the surrounding community or structure. As with other homeowners’ associations, condo owners must pay dues regularly. All the building’s or community’s insurance premiums and the cost of upkeep for any included facilities are included in these payments.
Townhouses, often known as “town homes,” are multifamily dwellings that share a common wall, like duplexes. Commonly, they consist of two or three levels. As a rule, they require far less upkeep and maintenance than a single-family home, yet they are roomier than an apartment.
Semi-detached houses have a common wall with an adjacent structure, much like townhouses. However, semi-detached residences are often larger than townhouses. The price of one of these dwellings is often lower than that of a comparable single-family house. Also, because the owners of semi-detached houses often split the maintenance cost, they may be more budget-friendly.
The term “apartment complex” refers to a large building or collection of buildings that house several apartment units. Apartment complexes like these may provide perks like a gym, a pool, and even laundry rooms and are aimed towards single people and families.
Co-housing refers to a style of shared housing in which members have their own private bedroom and bathroom, but everyone shares a common area such as a kitchen, dining room, and laundry room. In addition to fostering a sense of community among its residents, co-housing developments may provide residents access to common and shared outdoor areas.
Student housing is specifically designed for students, typically located near a college or university campus. These properties may offer amenities such as a shuttle to campus, study rooms, and social events.
Senior housing is specifically designed for seniors, often with amenities such as meals, transportation, and social activities. Different types of senior housing are available, including independent living, assisted living, and skilled nursing facilities.
A step-by-step guide on buying multifamily properties
Set your budget expectations
Know your budget constraints before beginning your search for a multifamily building. Think about the initial investment, the closing costs, and the ongoing costs of owning a home, like a mortgage, property taxes, and insurance.
Research the market
Find rental homes in regions with high demand, as this will make it simpler to fill the units and may even boost their worth in the long run. Do some homework on the going rental prices in the region and see how they stack up against other properties in the neighborhood to get a feel for what you could possibly charge. It would be best if you thought about the area’s potential for growth and any zoning regulations that could limit your ability to rent the property out.
Shop around for a mortgage
Finding a lender willing to provide multifamily mortgages is essential if you need to use financing to complete the transaction. At LBC Mortgage, we compare rates from different lenders to provide the best financing solution for a borrower’s needs. All you need is to contact us for a free consultation and give specifics about the home you want to buy, as well as your financial situation and credit history.
Find a real estate agent
Hiring a real estate agent with prior expertise in multifamily dwellings might be beneficial. If you hire them, they will assist you in locating properties that fit your requirements and advise you on the buying procedure. They may also assist you in negotiating the best price for the home by giving you insight into the local market.
Look for properties
To identify multifamily properties that are within your price range and preferred area, you can consult web listings, real estate brokers, and other sources. Don’t be in a hurry to buy a home without doing your research. You should look over the financial paperwork, do a physical inspection, and get an appraisal. Try to seek out rental homes that are in good shape and have high earning potential.
Make an offer
Get in touch with a real estate agent as soon as you find a home you want to buy and put an offer on it. Don’t forget to haggle over the final price, closing date, and any other stipulations you wish to see in the contract’s fine print. The sale of a home may be subject to certain conditions, such as a passable home inspection or approval for a mortgage.
Get a home inspection
Before the closing, the house should be carefully checked to find any problems that might come up. The inspector’s job is to find any major problems that could cost a lot to fix, like damage to the structure, electrical problems, plumbing problems, and so on.
Close the deal
The closing and transfer of ownership can occur once the purchase agreement conditions have been fulfilled. At this point, you’ll sign the mortgage paperwork, make the down payment or final payment on the property, and take possession of the house.
The Bottom Line
Buying a building with multiple units and renting them out to different people is a good way to make money. However, you should do your homework on the area and the property and have a well-thought-out financial strategy and plan in place. Having a real estate agent and a lender who has worked with multifamily buildings before can be helpful. The property, once purchased, must be well-managed to ensure its continued profitability as an investment.