If you’re in the market for a multi-family residential property, it’s important to know what to look for. Not all properties are created equal, and some will be a better fit for your needs than others. Here are three key attributes to look for when choosing a multi-family residence:
Location
Ideally, the property should be in a desirable area close to amenities and transportation. Properties near major highways and entertainment hubs draw more interest and typically charge higher rates. Residents looking for easy access to work and nightlife will likely choose spots with easy access to their priorities.
In addition to proximity to amenities, consider the community and local economy. Some other common location-based factors influencing housing prices and traffic flow to your property include unemployment rates, crime rates, proximity to fire and emergency services, and local laws.
Location plays a significant role when figuring out the potential cash flow of a property. Still, even multi-family units located in less-than-perfect neighborhoods could be a wise investment for your portfolio if it has other assets (more units, on-site amenities, quality condition, etc.). Since you can’t change the location of a property, it might make sense to look for better-kept properties that aren’t quite as convenient if you want a lower upfront cost.
Size and Condition
Multi-family properties with more units have the potential for higher returns, but they also require more work to maintain. Multi-family units can be as small as duplexes or as large as apartment complexes that house hundreds of residents. Multi-family units that accommodate up to 100 residents often require a good mix of return and work.
In addition to property size, consider the size of individual units. More spacious or smaller units with convenient layouts will likely attract renters and fetch higher rates.
The condition of the property is another crucial factor to consider. If the property needs significant repairs, it may not be worth your investment. Many buyers are looking for move-in-ready units, and you’ll likely have to charge lower rents if your units are not up to par. If you’re interested in purchasing properties that need more attention, you could save money on your initial investment and use the extra funds to add value to your investment. The size and condition of a multi-unit family property will significantly affect the potential cash flow of an investment.
Unlike a unit’s location, the property’s size and condition can be changed, even if it takes a little extra time and effort. So, opting for a less attractive property in a prime location might be a good option for you, if you’re willing to put in a little extra work.
Price
The price should be reasonable when you factor in the location and size of the property. If a property is overpriced, it may not generate the return on investment that you’re looking for. If a property is priced too low, it could indicate significant problems with the units or the building itself.
When considering purchasing a multi-family residential property, look at the net operating income (how much the property makes after expenses) and the capitalization rate.
To figure out a property’s capitalization rate, divide the Net Operating Income by the current market value (or listing price).
For example: If you estimate an NOI of $100,000 on a $2 million property, your cap rate would be 5%. Cap rates under 5% are considered lower risk and lower turns. In comparison, cap rates over 5% are considered a little higher risk, with the potential for higher returns.
It’s essential to have realistic expectations when buying a multi-family unit. The property’s price, location, size, and condition of the units, and the local economy will influence how much money you can make from your investment. But with some research and due diligence, you can find the right property to fit your needs and help you reach your financial goals.
Are you ready to purchase or sell your multi-family residential property? We can help. Reach out for more information today.
