One strategy every wise property investor works on is how best to invest in multifamily for sale. There is a lot to this real estate investment strategy. Sure, finding rental properties is one of the most challenging and important aspects of investing in multifamily rentals. But that’s not all there is to investing in this type of property. Buying a multifamily home is so much more than finding multifamily for sale. There’s also financing, multifamily real estate investment analysis, and more.
Multifamily real estate investment was the backbone of this author’s rental property business plan and it may be yours as well. So here is Mashvisor’s guide to locating and buying multifamily for sale.
Step One: Financing Multifamily Property
You may be surprised to hear Mashvisor say that the first step is not finding multifamily for sale. The truth is, it is the second step. The reason is that few real estate investors pay cash for a multifamily for sale. Instead, they finance the purchase with a loan. New investors typically cannot use a standard mortgage for a multifamily that they will rent out entirely. But don’t quit now on your dream of buying a multifamily for sale. There is a way, even if you are a first-time real estate investor with almost no down payment.
The answer is owner-occupied multifamily financing. It is possible (if you qualify) to purchase a multifamily for sale with a low-interest, low downpayment, FHA loan. There are two main catches. First, you have to live in one of the units yourself. Second, you need to live there for a period of time before you can move out in order to satisfy the terms of the loan agreement.
Related: How to Make Money with Owner-Occupied Rental Property
Those investors with a strong rent roll, equity in other rental properties, and a few years in the business will find banks eager to work with them. A multifamily for sale is a rare gem and banks know real estate investors will do well with the investment property if the up-front work is completed.
Step Two: Finding Multifamily Properties for Sale
As mentioned, one difficulty of this real estate investment strategy is that finding multi-family homes for sale or multifamily apartments for sale is tough. So you may be itching to hear us answer the question, “How do I find multifamily homes for sale near me?” The truth is, that is a topic worthy of a full story. We will give you some help here of course. Where to find multifamily properties for sale depends on your location. Many towns exclude multifamily properties with zoning laws. You will need to search in areas that permit high-density housing. Cities and industrial areas are generally better hunting grounds in which to bag a multifamily for sale.
Related: The Easiest Way to Find Investment Property
Large multifamily properties for sale are less common than small multifamily properties for sale. There are two main reasons for this. First, many triplex and fourplex multifamily properties have been turned into condos. This is true even of duplex houses in many areas. Since the individual units are then owned by individual occupants, the chances of the entire building being sold at once is near zero. Use extreme caution when considering buying multifamily homes for investment you won’t own outright. You do not need the hassle of a co-owner or co-owners of a property that can outvote you on key issues like renovations and maintenance. You also won’t be able to control their actions, and thus, any problems between the unit occupants become problems you don’t have good control over.
We suggest a few strategies for how to find multifamily properties for sale. First up, use a property search tool like the one Mashvisor offers. Narrow down your qualifications with the search filters and look inside your geographical area. Search tools also let you filter by number of units and price.
Start your investment property search with Mashvisor now.
Next, work with a realtor or multiple realtors. Just don’t overlap their coverage. Realtors want to sell you a pricey multifamily. The commission is juicy and to them it is like one single sale of multiple homes. Realtors want real estate investors to ask for help. As a buyer, you don’t pay the realtor anything, so your costs are unchanged.
Step Three: Buying Multifamily Homes for Investment
Multifamily real estate for sale is rare, so don’t expect to have a lot of choices. Still, using a great multifamily investment calculator like the one Mashvisor offers is a good idea. You want to ensure your return on investment is sensible. Also, you should run the numbers against owning the same number of units in total, but in smaller clumps. In other words, compare the return on investment of a single-family home and a duplex versus triplex multifamily. There are some economies of scale that make a multifamily for sale an attractive buy, but be sure the math works in your favor.
Step Four: Owning a Multifamily Home
Once you have invested in a multifamily, you now have some planning to do. Multifamily property for sale is so rare in some areas that once you own one, you have some great choices. You can, of course, model your multifamily for maximum rental income and maximum return on investment. You can renovate part or all of the property to build equity and increase rents. Since the investment property has multiple units, renovations don’t mean zero rental income.
Another option is to think beyond rental income and “condo-ize” the investment property. If local zoning permits it, you can make each of the individual units its own condo. You can then opt to sell them one at a time, or to another real estate investor. In many cases, turning a multifamily into condos can yield a premium price when it comes time to sell.
Investing in multifamily properties is the backbone of most rental property businesses. Mashvisor has the tools both beginner and seasoned investors can use to invest in this important type of real estate. Here is how to get started.