How to Buy a Multifamily Property: Pros and Cons

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Written By Justin McGill

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re looking to learn how to buy a multifamily property, this step-by-step guide will show you how to do it like a pro. From finding the right property to financing and closing the deal, we’ve got you covered.

I remember when I first started looking into multifamily properties as an investment. I had no idea where to start or what I was doing. But with some research and guidance from experienced investors, I was able to buy my first multifamily property and begin building my real estate portfolio.

Now, I want to help other people who are interested in investing in multifamily properties but don’t know where to start. That’s why today, we’re going over everything you need to know about how to buy a multifamily property — from finding good deals to closing the sale.

How to Buy a Multifamily Property With No Money

If you’ve been in the real estate business for a while, you’re probably thinking about investing in a multi-family property. The benefits are aplenty: more cash flow, substantial tax breaks, and easy property management.

If you don’t have a lot of cash, you might be wondering how you can invest in property. Perhaps you’re thinking that real estate investment is out of your reach.

While having a sufficient amount of capital for a down payment on an investment property is the norm, this doesn’t mean that if you don’t have this money, you’re out of luck. You can still invest in multi-family properties.

As with any financial decision, it’s essential to consult with a financial advisor to ensure that a strategy works for you, such as purchasing a multi-family home.

Best Multifamily Home Loans

There are a few different types of loans you can get for multifamily properties. You’ll want to do your research to figure out which one best suits your needs.

The rates on these loans usually range from 4.5 to 12% and may be suitable for both refinancing and purchasing properties.

Traditional Multifamily Mortgage: Most conventional lending institutions will only provide loans to investors looking to buy a property with two to four units. Anything larger would be considered commercial real estate. For investors who want a long-term mortgage loan and are able to make a 20% downpayment, conventional mortgages can be a great choice.

Federal Financing: Government loans such as the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are great options for investors who don’t have a large downpayment and are willing to live on the property.

Portfolio Loans: If you want to buy up to 10 investment properties in one shot, a portfolio loan is your best shot. These 10-property mortgages are for investors who want to buy many homes at once.

Short-Term Financing: Some real estate investors may need short-term loans, such as hard money or a bridge, for more flexibility. Investors who need to make a quick deal, such as buying an undervalued property, may finance it in the short term until they can remodel it or increase the rental rate to meet the long-term financing requirements of the bank. Short-term loans usually come with higher interest.

Pros of Buying Multifamily Properties

Before deciding whether to invest in a multi-family unit, you should carefully consider the advantages and disadvantages to determine if it is the right fit for you.

Investing in a multi-family property is advantageous for many reasons.

Recurring Income: The income potential of a multi-family property is one of its most attractive features. Well-located properties can cover your mortgage payment each month, putting cash in your pocket.

Income Diversity: If a single unit in a multi-family property is vacant, the other occupied units in the property will still generate some revenue, which can help offset the lost income from that single apartment.

Low Maintenance: Roofs and heating systems can be repaired all at once for multi-family properties. This will save you both time and money on labor and materials.

Multiple Income Sources: In large multi-family buildings, owners can look for ways to generate additional income from their renters. You can charge a fee for parking spaces or garages, or you can install a coin-operated laundry facility. These options will generate income in addition to your rent.

Performance-Based Financing: For financing, a multi-family property is valued based on its performance, not your credit history. This can help you invest in commercial real estate without a great credit rating.

Cons of Buying Multifamily Properties

While the benefits of investing in a multi-family building are many, it is important to be aware of the unique challenges that this type of investment may present.

Management: If you’re managing a 4-unit or more rental property, you’re probably spending more time than you’d like on it. Hiring an on-site property manager or hiring a property management company are both great options. However, these come with their own costs.

Higher Turnover: The average time that renters stay in a rental unit is about 2-3 years, while homeowners tend to stay in their homes for 5-7 years before moving. Remember to account for the costs of attracting more potential renters due to high turnover rates.

Tenants’ Neglect Property: Since multi-family properties are rented to more than one family, they are usually subject to more wear-and-tear than single-family homes. Investors should anticipate more maintenance between tenants.

Expensive Maintenance: When major system problems occur in a multi-family unit, it will affect more tenants than it would in a single-family home, meaning it’s more costly to fix. Investors should prepare for these unexpected costs if they ever happen.

What is The 50% Rule in Real Estate?

The 50% rule is a guideline for real estate investors to follow when estimating expenses. The rule states that 50% of the monthly rent should be used to cover operating expenses, which include mortgage payments, property taxes, insurance, and maintenance. The remaining 50% can be used to cover the investor’s profit margin or cash flow.

Is a Multifamily Property a Good Investment?

A multifamily house is a good investment if you are looking to generate income from rental properties. The downside is that you will be responsible for the upkeep and maintenance of the property, which can be costly.

How Do I Start Investing in a Multifamily Property?

First, do your research. As with any type of investment, it is important to understand the risks and potential rewards involved before you commit any money.

If you are new to multifamily investing, you may want to consider partnering with someone who has more experience in order to minimize your risk.

It is important to have realistic expectations when investing in any type of property.

Conclusion

If you want to learn how to buy a multifamily property, this guide will help you do it like a pro. From finding the right property to financing and closing the deal, we’ve got you covered. So don’t wait any longer – start your search for the perfect multifamily investment today!

Justin McGill