Scaling from single- to multi-family rental properties can improve an investment portfolio and create new financial opportunities. That said, multi-family rentals have their own set of challenges to consider. The buying process can be a bit more intricate and expensive compared to single-family homes. By knowing the fundamentals of multi-family investing, you can smoothly make the switch to this strategy.
Choose the Right Multi-Family Property for Your Portfolio
Perhaps the first thing to know about multi-family rental properties is that they fall into two main categories. Multi-family buildings with four or fewer units are seen as residential properties, whereas those with more than four units are typically classified as commercial properties.
The size of the multi-family property you’re looking to buy will guide you in how you search for, evaluate, and price it. For instance, multi-family properties with four or fewer units are usually financed with residential mortgages, which is quite similar to the process of buying single-family properties.
On the other hand, commercial property is purchased with commercial debt and priced according to a value formula rather than by looking at similar properties. Buying a commercial property can be a bit daunting for those who are new to the process, which is why many rental property owners typically start with smaller multi-family properties.
More Units, More Complexity
Even if you buy a multi-family property with four or fewer units, you will need more preparation than when buying single-family rentals. For example, location is always a key aspect of any profitable rental.
Location is crucial for multi-family properties, with accessibility to public transit and essential amenities playing a key role in their success. An exhaustive assessment of the area’s cost of living, crime rate, and typical earnings is necessary for making informed decisions.
While looking up numbers online can be useful, they might not provide a full analysis. This is particularly the case in areas that have experienced recent changes, whether they are positive or negative. In addition to your other examinations, drive the neighborhood and pop into the police station nearby to gain a more accurate perspective on the area.
Get Your Finances in Order Before You Scale
Before you begin your property search, it’s a good idea to research lenders and make sure your finances are all set. Depending on the type of property you want to buy, pick a lender with a reputation for helping investors purchase that particular type.
You’ll also want to gather some documents that show your creditworthiness, including income and expense statements from your current rental properties. If you want to qualify for a loan on a multi-family property, you might need to provide some extra documents or information that aren’t typically required for a single-family property. Just be prepared to share a few additional items if asked.
What Professionals Help You Scale Your Rental Portfolio?
Scaling up to multi-family properties really depends on bringing together a talented team of professionals. An educated real estate agent is important, as their expertise in the multi-family market will guide you in making informed decisions about property acquisition and management.
Look for people who specialize in the kind of multi-family property you want to acquire. You’ll also have the chance to benefit from the local knowledge of a professional property management company. As a local market expert, they bring great value to the purchase process and during the entire duration of your property ownership.
If you need expert assistance with your rental properties, Real Property Management Impact is the perfect choice for you! We provide thorough market analyses and credible property management services in Durham to help maximize your rental income. Whether you need advice on market trends or daily management, our devoted team is here to give assistance. Call us at 919-439-8989 or contact us online at contact us to get started!
Originally Published on June 30, 2023
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