What You Should Know Before Buying a Multi-Family Rental Property

Many investors are drawn to the cash-flow possibilities of a multi-family building.

Why own 1 single family home when you can have 4 individual units in a 4-plex, all bringing in rent?

In practice, it’s rarely quite so simple.

Some of the factors an investor should consider before closing on a multi-family building:

What is the age of the major systems?

Electrical, plumbing, roof, windows, furnace, and HVAC — you need to assess all of these possible major expenses as part of your initial research.

Has the building been professionally managed before?

Can you obtain the maintenance history for the past 5-10 years?

This will help paint the picture in terms of ongoing issues that may or may not have been resolved- or that may have been “touched up” in the hopes of a quick sale.

At what price do the units rent?

If it’s below a certain threshold, the demographics of the likely renter could shift considerably. Lower-priced units tend to have more vacancy and more evictions.

Additional questions that you should consider:

  • If there are tenants in place, how long have they been there
  • Are they paying market rent?
  • When do their leases expire?
  • When do their leases expire?
  • What is the anticipated increase in rental rates if you renovate the units?
  • If you renovate 1 unit but the others are outdated, will you be able to obtain the same rent as you would if all units were renovated?
  • What part of town is the building in?
  • Is this a popular area?
  • What is the parking like at the building?
  • Is there a parking space per bedroom?
  • This could greatly impact your ability to rent the unit. Is there street parking?
  • Is the area pedestrian friendly?

These are some of the general considerations with multi-unit buildings. There are

There are many more, including the cost of vacancy – you should anticipate vacancy costs, whether a unit is actually vacant or whether a tenant simply has not paid rent – from the point of view of your bank account, they are the same thing.

In short

Multi-family buildings can be a huge success for investors. But a simple calculation of mortgage+taxes+insurance – rent = profit, will not be enough to determine your ROI. There are a lot of factors that could easily sink a “good on paper” multi-family investment.

The best answer is to consult the professionals at Real Estate Solutions’ Sales Division or Property Management Division if you’re considering purchasing a multi-family building!