Investing in multifamily property is a great way to minimize the risk of vacancy and lost income. It will also provide some impressive cash flow and, assuming you have good tenants in place, a profitable and successful investment opportunity.
There are several things to think about before you buy. We’re in an unusual market right now, so some of the conventional real estate wisdom you’ve followed for your investing career may not hold up. Prepare to be flexible and creative and always surround yourself will experts.
Think About How Large of a Property You Want to Buy
The size of your multifamily property will dictate what type of management you’re going to need. When you have a building with 15 units, you can typically ask a Merced property management company to take care of all the leasing, management, and maintenance without having anyone physically present at the complex. However, if you’re going to buy a building with 16 or more rental units, an on-site manager will be necessary.
This is going to impact your property management cost as well as the logistics in how your property is managed, and by whom. You’ll need to have this planned before you begin looking at potential acquisitions.
Financing Your Multifamily Investment Property
You’ll find a lot of cash offers on the market these days, but think carefully before you try to complete. Throwing all of your available money into the acquisition is risky. You’ll need cash available for routine repairs, emergency maintenance, as well as marketing, screening, and other unexpected costs.
Most investors can find financing that allows them to leverage the purchase with a down payment of around 25 percent. A lender will want to see proof that the income from your multifamily property will be sufficient to cover your mortgage payments. Make sure you can provide this, and evaluate your credit profile so you know what type of terms you can negotiate when you’re deciding on a loan.
Multifamily properties come with more income because you’ll be earning multiple rents. But, these investments also come with more expenses. Landscaping, pest control, and management are going to be important costs to consider. Include all your variable costs with your fixed costs when you’re measuring your projected income and operating costs.
Include Utilities or Leave Them to Tenants
Utilities with multifamily homes work a bit differently than they do with single-family investments. You may want to have each tenant set up their own electric and other utility accounts. Or, you may want to cover the bills for the entire building and then bill the costs back to tenants based on usage.
Another option is to charge a flat fee for water, electricity, gas, sewer, and trash removal. The best course of action will depend on the property itself and the number of tenants you have. This is another part of the planning process that should be decided before you buy.
Tenant Relations and Disputes
Multifamily landlords are uniquely required to deal with tenant conflicts and disputes. You’ve got neighbors sharing walls and communal spaces when you rent out multifamily units. There are going to be complaints about parking, cleanliness, pets, and trash. Include some consistent standards and expectations in your lease agreement and if you’re buying an occupied multifamily building, make sure you get a sense of how the residents get along with each other.
These are some of the things to consider as you move towards buying a multifamily Merced investment property. We’re here to help, and invite you to contact us at River Drive Properties for all your property management needs.
River Drive Properties provides effective and professional property management services in Merced and the surrounding areas including Fresno, Modesto, and Turlock. We have extensive experience with both single-family homes and multifamily properties.