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Small Multi-Family Properties - Where and How to Buy Them

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Published on Monday, August 29, 2016 by Land Century

When most people hear the words “multi-family property,” they envision towering apartment buildings and high-rises. These types of properties are often out of reach of the average real estate investor, so they write them off without giving them a second glance.

But small-scale multi-family properties also exist. Often containing no more than five dwellings, these properties are likely more in line with your price range and are much easier to manage. They can also make you a lot of money if you choose the right location and property.

Where should you look for small multi-family properties and how do you go about buying them?

Where to Buy Small Multi-Family Properties

Before you even think about the “how”, it’s important to consider where you’ll buy property. Naturally, you want to choose a good location, meaning there’s demand for rental properties, particularly duplexes or triplexes. Ideally, you’ll look for properties in locations you’re familiar with. If you don’t have any investment properties, you may start with your own town, provided there is demand and enough opportunities. If you already own investment properties, you can search for listings nearby. You already know the area and know the demand is there. Remember to also check our section with multi-family properties for sale.

You’ll need to do a lot of research to find the right location for investment. It’s important to understand how much rent you can demand and what the local market is like. Smaller multi-family properties don’t do well in every city, or part of town, so keep that in mind. Take a look at the area to see what’s available and what others are charging.

If you’re not seeing any of these types of properties for rent or listings are staying on the market for a long time, you may want to move on to another location.

How to Buy Multi-Family Property

Buying a multi-family property is not unlike buying any other property. The main difference is that there are several units to consider – not just one. This means you’ll have not just one kitchen and bathroom to look at, but three, four and sometimes five.

In short, you really need to do your due diligence to make sure the property is up to par, or won’t drive you into the poor house after making repairs.

See the Property in Person

After you’ve researched your location and you’ve found a few properties you’re interested in, it’s time to view them in person. You wouldn’t buy a home – whether you live in it, rent it or flip it – without seeing it first. Try to be open minded when viewing properties. Sometimes, the units are in great shape, but the property’s exterior leaves a lot to be desired.

Consider the Cost of Repairs

There’s a good chance the property will need at least a few repairs to bring it up to par before you can rent it out. You’ll need to consider the cost of the repairs when viewing the home. In many cases, you can get a general idea of what needs work just by looking at the listing photos. If you can plan ahead, you may bring a contractor friend with you when you view the house to give you an idea of how much it will cost to bring the home to respectable condition.

Unless you have a lot of money to invest, you’ll likely be looking at properties that are in fair or poor condition. Repairs can easily exceed the value or income-producing potential of the home, so keep this in mind as well. Not all properties in need of “TLC” are worth buying, so you’ll want an expert opinion on repair costs.

You’ll also want to have a general idea of how much you’ll charge for rent. This figure will help you determine whether the property is a feasible or even profitable investment.

Get Your Finances in Order

If you plan on financing the property, you’ll want to work on securing the funds you need early on in the process. Many investors ensure that they have several avenues available for buying properties just so a good deal doesn’t fall through at the last minute.

Conventional loans and private lending are the two most popular and simplest ways to secure financing for a property, but there are also some sellers who are still open to owner financing.

Make an Offer

You’ve found the ideal property, and you want to snag it up before someone else does. Now is the time to make an offer.

Some investors say the best approach to negotiations is to give the seller your highest and best offer. This way, you don’t have to worry too much about negotiating up or down. If you’re in a competitive market, this is probably the best method to use. Sending a low-ball offer may cause you to miss out on a potentially lucrative opportunity.

If you’re in an area where the competition is minimal, you can try a different approach. Some successful investors submit their lowest possible offer first. With no one else to compete with, you stand a better chance of actually getting the seller to agree on the price – especially if the property has been on the market for quite some time. And if they don’t like the offer, there’s always room to move up.

Get a Professional Inspection

Once the offer is accepted, you’ll have a set amount of time to have a professional inspection performed. Get this done as early on as possible to avoid any potential conflicts that may prevent you from getting the inspection done on time. Make sure you hire a professional inspector, especially if this is your first multi-family property.

Closing

The final step in the process is the closing. Oftentimes, the buyer is responsible for closing costs, so make sure that you are prepared for this well in advance.

Once you’ve closed the deal, the property is yours. Bonus points if you find a property with units that are already rented – you can start earning income right away. Once the property is yours, it’s important to get started on repairs right away. The faster you rent the property, the less money you’ll spend out of pocket on your monthly mortgage.
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