People who succeed with multi-family real estate agree with Sarah Beeny, who said, “There will always be people who make money because people always want homes.” Often, someone who adds multi-family real estate to their property investment portfolio is providing a solution to people who, as Ms. Beeny puts it, simply “want homes.”
It can be fulfilling to provide a cozy place to live, but there are challenges specific to multi-family units that may come up. These could include issues with the paperwork, the value of the home, and the process of maintaining a healthy ROI. If you take the right steps, however, providing for people who “want homes” can be an enjoyable—and profitable—experience.
1. Be Sure to Get Thorough Paperwork
Before dipping your toe in the multi-family pool, get a feel for the investment through any paperwork you can gain access to. Of particular import are those which relate to the income and expenses associated with the property. You should take a close look at the following:
- Expense statements for the current year
- Expense statements for previous years
- Service contracts
- Existing service reports
- Current rental income
- Rental income from previous years.
If the numbers match what you expected, that’s great. If there are some unpleasant surprises, you should look into it. Regardless of how good the numbers look, do a little digging to make sure they are justified. For instance, low maintenance receipts may be a sign the current owner has neglected important repairs or upkeep.
2. Think About Living in One of the Units to Save Money Upfront
You may not have a full 20% or more to put down. Or you may have it, but don’t feel comfortable risking that much. In Novi, you can save down payment money by living in one of the multi-family units that’s part of your real estate portfolio.
This will not only make the acquisition of the property more manageable, but it may also help you feel more comfortable with what’s going on in and around your property. You can have a first-hand perspective of how tenants are behaving as well as many issues that tend to arise with multi-family real estate.
3. Assemble Your Team of Professionals
Having the right professionals on your side can make a big difference as you build your Novi real estate investment portfolio. Here are some people who can provide valuable support with the acquisition and maintenance of a multi-family investment property:
- A local real estate agent: They can help you find and close the best deals as well as keep an eye out for future bargains.
- An attorney: Drafting terms that benefit you as the investor pays dividends for years down the road. You may also need an attorney to assist with evictions if your property manager doesn't handle them for you.
- A lender: The right lender can make the difference between getting a loan with terms that allow you to be profitable and one that puts you underwater. Find one that is well-recommended, and that has a solid history of supporting investors.
- A property manager in Novi: Property management ties every element of the above together. They not only help you manage your growing real estate investment portfolio, but they're also experts in mitigating issues with tenants to avoid the stress of an eviction in the first place.
4. Carefully Assess the Value of the Property
When considering how much money you can make with multi-family real estate, skip optimism. Prudent, pragmatic thinking may lead to you walking away from some deals—but reckless investing may lead you to the poor house.
Many investors take the amount of cash they’ve put into the property and divide that by the net income after expenses. That’s called the cash-on-cash return.
For a Novi investment, if the number is above 8%, some feel that makes the investment worth the effort. However, for others, 8% isn’t high enough. There are other ways of determining ROI, of course—but cash-on-cash is a good way of feeling out the immediate return on what you’ve committed to the investment.
5. Keep Some Emergency Funds on Hand
You don’t want to make the mistake of assuming all units will be rented all the time. Some feel it’s safer to see if you can pay your expenses if only half the units are rented.
Generally speaking, you should take at least 10% of all income and stash it away in case the rental market takes a hit or some other unexpected event requires some emergency cash.
6. Professional Property Management Is a Game Changer
We touched briefly on property management before, but it's so crucial for developing a multi-family investment portfolio that it deserves a separate tip.
For a relatively small percentage of your rental income, you can secure the services of a property management company to handle the daily ups and downs of your growing real estate portfolio. A property management company can handle tenant concerns, lease agreements, advertising, listings, and just about every other aspect of the rental business. The only thing an expert property manager in Novi can't handle is buying more properties for you. However, they can give guidance on where to invest next!
If you’re just starting with multi-family investing, hiring a property management company in Novi may be worth it for the education alone; you can learn how it’s done the right way instead of through trial and error. If you’re considering getting into multi-family property investment—or would like some guidance to help maximize the return on your current portfolio—JMZ Property Management is the place to start!
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