How to Buy Multifamily Property Profitably
Multifamily property is any rental income property that has more than one family unit. The smallest property being a duplex (two units) and then up from there to larger rental complexes easily consisting of hundreds of apartments.
The advantage of purchasing multifamily properties-not unlike any income-producing property-is that it provides real estate investors with the ability to support debt from the income it produces-a concept otherwise known in real estate investing circles as "using other people's money".
This idea is crucial to buying multifamily properties profitably because the success or failure of the investment depends on the income generated by the property to meet debt service and other obligations required to keep the property in service. Here are three things that will help you buy multifamily property profitably.
1) Obtain sound financing - Establishing a sound financing package on the property is a key when buying income property. You want to obtain a loan that doesn't place excessive burdens on the property, or yourself. When applying for a loan, present lenders with clear and concise cash flow reports because lenders evaluate rental property based on income stream and generally structure a loan based on the property's financial strength as well as the investor's.
2) Conduct a rental market survey - The amount tenants are willing to pay for rent to occupy a unit in the apartment is the cornerstone of the investment. So it's incumbent upon real estate investors to understand local rental market trends for vacancies and rental rates when buying multifamily property in order to gauge the rents and vacancy rates. Rental market trends are easy for investors to recognize, just watch the newspaper or drive around the community noting all rental properties that have vacancies. If you see few for rent ads or signs, or surmise that rents are increasing, it probably signals a shortage of rental units, and a favorable opportunity for you. On the other hand, when lots of rental signs start appearing and rents drop, it could spell trouble.
3) Consider economic conversion - There might be money to be made in cases where the former property owners have let the property run down and rents had to be decreased to keep the units filled. If these rental properties are in a good area of town or in an area that is returning to a former higher quality, then the remodeling of a rundown apartment complex can contribute to a profit. Just be careful to ascertain the cost for remodeling and what impact it will have on rental income. Pure window dressing for the sake of appearances only, unless it has a positive influence on occupancy levels or rents, is typically avoided by prudent real estate investors. So get a qualified contractor to give you a bid on remodeling. Otherwise, what you surmised as surface issues when you were buying the multifamily property could in fact be a costly can of worms.
The bottom line is straightforward. Multifamily property provides real estate investors the opportunity to build wealth but requires you to do it correctly, with a careful eye on the elements discussed here. Here's to your real estate investing success.
About the Author: James Kobzeff is the developer of ProAPOD - leading real estate investment software since 2000. Create cash flow, rates of return, profitability analysis and marketing presentations for rental property in minutes! Easy and affordable. Learn more at => http://www.proapod.com
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