Expand Your Real Estate Company With Multifamily Properties
Once you’ve successfully managed single-family real estate, you’re ready to try the challenge of multifamily housing. Whether you’re planning on leasing out upscale apartments or selling your renovated property to another landlord, follow these steps to take your real estate business to the next level.
Pick a Property
First, you must find an existing house, apartment, or office building to buy. Use websites such as LoopNet, Zillow, and Trulia to find candidates. As you look at each listing, ask yourself whether you like its location, size, asking price, and potential tax breaks. If you answer these questions positively, reach out to the owner so you can ask questions about its current use and interior condition.
Determine Its Worth
After a good meeting with the property owner, it’s time to figure out how much your potential property is worth. Don’t assume that a building is in good condition based on the asking price. Instead, have a thorough inspection completed by a third-party company. If possible, accompany the inspector and note any obvious problems, such as broken windows and leaking pipes.
Now that you know the physical condition of the multifamily house, it’s time to figure out its worth on paper. Ask the current owner how large of a down payment he or she expects. These can be up to 25% of your property’s worth, so ask your seller early in your negotiations. Then, work with your accountant or bank to determine what a fair mortgage would be. Don’t forget to look at data in your area for ratios such as price to rent and price to income.
Calculate Your Investment
Once you have all this information, it’s time to decide whether this property is worth your investment. Examine your current finances and calculate how much capital you have available for a down payment and mortgage. Make sure that your current and projected cash flows are positive, or else you do not have enough financial security to make a new investment. Look at the trends in your area for apartment complexes and other large properties. For example, do landlords tend to default on their mortgages, or do they make a profit? If you’re having trouble answering these questions, talk to your investors or accountant so you can make the best decision.
By following these steps, you avoid making hasty and risky financial decisions and increase the chances of making a profit from your multifamily real estate.