Many of us consider whether buying a multi-family rental property is a good option, in terms of being a component of one’s investment strategy and process. Like anything else, a savvy consumer does their research and becomes familiar with the potential pros and cons, and whether it’s for them. It is important to understand and evaluate the best buying opportunities, whether to sell or rent is the best strategy. Should you buy a new property or an existing one? With that in mind, this article will attempt to briefly consider, examine, and review when and if someone should buy, and if it is the best time to sell and/or if renting might be the best strategy. and approach.
1. Before buying: There are many considerations before purchasing a multi-family rental property. Are you going to live in one of the units or are you going to rent the entire property? If you live there, your mortgage interest rate will be lower because it will be considered owner-occupied, but you will also receive less rental income. Those who do often see this as a way to use rental income to significantly reduce their own housing costs. If you’re considering this as an investment, then your mortgage interest rate will be a bit higher, your down payment a bit more, and you may need to justify the feasibility of the purchase based on rents. One formula, I suggest, is to receive a 6% return and positive cash flow. This means that if the property costs $500,000, you must have a rental record of $30,000 net per year, after deducting property taxes, and owner/landlord-paid utilities, and basic maintenance. So, if taxes were $10,000 and anticipated utilities and basic maintenance were an additional $5,000, then you must collect at least $45,000 per year in rent. Make this estimate, based on 10 months’ rent, to prepare for potential vacancies, etc. Also, calculate the rents and compare them to your expenses, and proceed, only if it is cash flow positive and the 6% return is achieved.
two. Sale: Is owning the best idea, for you? Are you prepared for unforeseen expenses and will you commit to setting aside a reserve fund for maintenance, repairs, and renovations? Is the real estate market right now to get the best results from a sale? Consider the competition, the local market, mortgage interest rates, and how much you feel, need, from any transaction.
3. Rental: Be sure to carry out a quality, legal and enforceable selection process, and look for the best tenants. There is no guarantee, but correct pricing, to ensure that you are not the most expensive, often creates the best opportunities. You also need to have the ability to do many of the repairs etc. or have qualified service technicians to prepare you for the possibilities and obstacles.
Like any investment, you must proceed, in the most prepared way possible, to make the best possible decisions. It may or may not be for you, so go ahead with your eyes wide open!
