Buying a Multifamily Home for Your InvestmentLook for specific factors when searching for properties. Look for specific factors when searching for properties. Renovating and Preparing for Tenants to Move In. Gina is a licensed real estate salesperson, experienced coach, and former high school educator of more than 1,000 students.
He writes for Fit Small Business with a focus on real estate content. Kaylee specializes in real estate, B2B and SaaS companies. You can find your experience in sales and real estate content at Fit Small Business. For example, it can provide more predictable income than single-family rentals and higher cash flow.
It's also generally simpler and more manageable than buying a large commercial property. However, it is undeniable that upfront costs can be costly. Multifamily home loans generally require a down payment of 20% of the price of the property, plus there are unavoidable costs of maintaining and managing the property. Once the seller has accepted your offer, you will begin the closing process.
If you receive funding from a lender, this process can take approximately 30 to 45 days. During this time, depending on your state's legal requirements, you will hire an attorney, obtain title insurance, and complete the home inspections specified in the offer. Finally, on the closing day, you will pay the down payment, complete all the paperwork and receive the keys to your new multifamily property. Kaylee Strozyk is a regular contributor to Fit Small Business, specializing in real estate.
She is an independent SEO writer for real estate, B2B and SaaS companies. Location is of paramount importance to real estate investors, even more so when investing in multi-family properties. With more tenants, each unit will need to attract tenants; location is generally the most desired criteria. Investors should look for high-growth, high-yield areas where properties are in high demand and well-maintained neighborhoods when investing in multifamily properties.
As you do your research, take note of the monthly rental rates for multifamily properties and how they change based on location, square footage, or amenities. See if you can find a rental property that is similar to the one you're considering buying, and then do some simple calculations to calculate your potential annual rental income. The number of units is definitely an important factor to consider when making the decision on which multifamily home is right for you. While more units mean more rental income, it also means more tenants to manage and units to maintain.
You may think it's a good idea to help defray the costs of buying your own home by buying a two-family home or duplex and finding a tenant to help cover the mortgage. However, you should also consider how this scenario can change your life, your finances, and the degree of privacy you will have. Before buying, it can be helpful to consider whether the location you choose will be popular for prospective renters and for you and your family to live in. If you buy a home in a less desirable area of the city, you may have a harder time finding quality renters and suffer from a lack of nearby amenities.
You may encounter different challenges when looking to finance a two-family home from mortgage lenders. While you can use potential rental income to help qualify for the purchase, you'll still need to have good credit and a low debt-to-income ratio (DTI) and get a larger down payment, usually around 25% or more with a multifamily home. Banks know that tenants can move and that you may have to pay the full mortgage yourself until you find another tenant. When you are the landlord, you naturally have less privacy than usual in a shared home.
And if you rent to more than one person, your privacy may be subject to an even greater violation. When your tenants move out and the rental portion of the property is vacant, it's known as vacancy expense. Basically, you will have to cover the full cost of the vacancy until you re-rent the property, including utilities. You may end up with additional repair and painting costs between tenants to fix the property for the next occupant.
You may also have to pay for advertising to get a new tenant from a property sales service or real estate agent. Your tax return will get a little more complex if you decide to become a homeowner. There is an entire IRS publication dedicated to residential rental property rules (Publication 52) that you will need to read so you don't break the rules and avoid getting into trouble with the IRS. Publication 527 (201), Residential Rental Property (Including Vacation Home Rentals).
The right type of loan for your investment depends on the property you choose to buy, so you need to be informed about each type of property before buying a home. The three main types of multifamily properties are residential multifamily (duplex, triplex and quadruple), apartment complexes and turnkey properties. It's important to work with a qualified real estate agent who understands the differences between buying a family home and an investment property, especially if this is your first rental property. If you plan to rent to an extended family member, you may be able to get creative about how the space is divided.
If you are buying a two-family home with another family member or friend, both of you will be responsible for the mortgage. Whether you choose to invest properties for faster profits or rent them out to tenants, the process of researching and buying a multifamily property will have a big impact on your success and potential profits. . .