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Yesterday’s podcast we discussed the benefits which multifamily space provides. Now we’re going to do a drilldown on what it takes to effectively locate multifamily & commercial investment properties, and we’ll be discussing the price, costs, expected revenue, and all of the other details that go into successfully & profitably investing!
The Location: It’s been said many times before, but location is of the utmost importance for real estate investors, and even more so when investing in multifamily properties. With more tenants, each and every unit will need to appeal to renters; location is generally the most desired criteria. When investing in multifamily properties, investors should pay attention to high-growth, high-yield areas where properties are in high demand, well-maintained neighborhoods.
The Total Number of Units: The next step is to evaluate the property as a whole. Investors should take into consideration the amount of units on the property, including the number of rooms in each unit. Beginner investors should begin their real estate search focused on three types of multifamily properties: the duplex (two units), triplex (three units), and four-plex (four units). These types of properties not only offer the most upside with the least amount of risk for beginner investors, but they are generally more affordable.
The Potential Income: The next step is determining the income a property can accrue. Sites like Rentometer.com or Craigslist are helpful sources for verifying rental prices and income, but investors should practice due diligence, taking everything into consideration.
For those looking to remain conservative, the 50 percent rule is a general recommendation: 50 percent of a real estate investment’s income should be spent on expenses — not the mortgage. While too mild of a strategy for some, it’s a good rule of thumb for beginner investors.
The Costs: Every situation will differ when financing real estate, especially multifamily properties. For example, the investor may choose to live in one of the units while renting out the other, which would allow them to qualify for owner-occupied financing. This means the income from the second unit will be factored into the lender’s qualifying ratio. Investors need to also consider their credit score when contemplating financing options, as this important number will greatly influence the qualifying process. In general, lenders will look at three components: credit, debt-to-income ratio, and down payment.
The Seller: There is one more question when evaluating potential multifamily properties is: who’s selling the place? Because the purchase price can vary greatly depending on the seller and their motivation, it’s imperative for investors to gain an understanding of who they’re dealing with. A bank-owned property is dealt with much differently than a for-sale-by-owner property, which means there’s potential for cost savings.
HUD: One of the best ways to score a multifamily investment at a discount is through the Housing of Urban Department (HUD) with a program called Multifamily Property Disposition. This program is not only responsible for foreclosed HUD-held multifamily properties, but they manage and sell them as well. Every new investor should begin their investment in multifamily properties here.
LOOPNET.COM: “Our listings feature HD videos and high-res photos to allow searchers to get a firsthand look at properties anytime, anywhere. LoopNet also connects tenants and investors with professional brokers that can offer solutions and professional guidance throughout every step of their search.”
Individual Brokerage Commercial sites like:
- www.ReMaxCommercial.com
- www.CBCWorldwide.com (coldwell banker)
- www.BuildingsByOwner.com
BuildingsByOwner is the only marketplace exclusively for buying, selling and leasing commercial real estate by owner. We offer commercial property owners an effective way to market their properties to thousands of commercial real estate investors across USA and Canada.
*They also have great commercial forms you can download.
MLS: The Multiple Listings Service (MLS) is a real estate investor’s dream come true. This extensive directory is a reliable source to find multifamily properties for sale across the nation, accompanied with in-depth details on every aspect of a property. While free to browse, the MLS does require registration in order to proceed further into property details.
*Creative searches with keywords
Redfin/Zillow: Anyone with a computer and access to the Internet should be utilizing these online sites when searching for multifamily properties. Sites like Redfin and Zillow provide a substantial amount of information with each property listing — that is both accurate and informative for investors. There is also an abundance of information on past, current and future market trends in every U.S. geographical area.
Alternatives: In the game of real estate investment there are always alternative options for finding properties, and bandit signs are one of them. These innovative and attention-seeking signs serve to attract potential multifamily property owners who may be considering a sale. They aren’t necessarily there to convince people, but rather entice prospective sellers who are on the fence about selling. With a proposition and phone number available, bandit signs can serve as an excellent do-it-yourself resource to finding multifamily properties.
