I’ve been doing a lot of work on Multi- Families lately. It’s a type of property I have a lot of experience with because I started doing rentals when I first got into the Real estate industry. I’ve been in hundreds maybe over 1,000 multi-families in the last few years. One of the important things to consider when buying or selling a multi- family property is the rent roll (simply put, how much are your tenants paying you?).
A lot of experienced investors have “Cap Rates” that they have to meet in order to purchase a property. Cap Rate is short for Capitalization Rate which is a ratio between the net operating income (income after all expenses) and the purchase price of the property (or the market value of the property).
For example (And I’m terrible at math so don’t worry this is easy):
You buy a property for $1,000,000.00, after all the expenses to operate the property ( Heat, repairs, landscaping, etc.) you will make $100,000.00 per year (net income), so you take the net income and divide it by the purchase price and you get .10 or 10%.
Every investor has a different Cap Rate that they look for, some are high like 10 – 15% and won’t consider anything less while others are ok with 5% because they really like the property or the particular location and think the value of the investment will increase over time. It really depends on what your game plan is and if you want to hold the property as the value increases over a longer period of time, or if you want better immediate investment turn around like 10% which is better than keeping your money in a savings account etc. Also, you may be looking to buy a multi-family and move into one of the vacant units, which is a great way to have your other tenants decrease your cost of living. Just make sure you review current leases and verify that the other tenants are paying what you’ve been told they’re paying.
Being a landlord can be a total nightmare if you don’t know what you’re doing. You have to make sure you have the time it takes to manage your property or you can afford to hire someone to manage it for you. Also, make sure you either hire an agent to find you tenants, or pre-screen your tenants before you accept them as applicants. Also, when buying a are property consider the unit size and what type of tenants you might attract. You may prefer to have families that are more stable and long term tenants so you’re looking for 3+ bedrooms, while others may be next to a subway and perfect for professionals and all 1 bedrooms or studios. Consider your tenants and the location of the property before purchasing.
Selling multi families and larger buildings is my favorite type of property to sell, here are a few of my recent Multi Family Sales this summer:
So it was a great summer for multi-family sales! If you have any questions regarding buying or selling a multi-unit building I’m certainly here to help (You can email me at Hillary3a@gmail.com).
Just remember…EVERY Property is different and has different items to address!