The true value of any investment property lies in the amount of income it can generate. As an investor, multi-family properties can represent the next level of your business, and the potential to bring in even more income. But they’re not without their challenges. Here’s what you need to know before investing in multi-family rental properties.
What you need to know before investing in multi-family rental properties
Location of the property
Location is a crucial consideration when it comes to investing in rental properties of any kind, but a few extra factors come into play for multi-family properties. Consider overall neighborhood factors like crime rates, the condition of the surrounding properties, and the mix of different types of properties in the area.
But also factor in who you would like to rent to, and if the neighborhood offers the types of amenities they would want. If you envision renting primarily to families, check to see if there are good schools, parks and playgrounds nearby. If you think you’ll be renting to seniors, look for nearby shopping centers, libraries and medical care facilities.
Condition of the property
Looks are important, but the condition of the rental property you’re investing in goes beyond cosmetics. You need to know that the property is sound, and find out if there are any defects that will require costly renovations. How much will you have to spend, after purchase price, to ensure that the units in the property can be rented at their full market value? Keep these key considerations in mind:
- The bones must be sound. Have big-ticket items like the roof, foundation, heating and electrical systems inspected so you know of any defects that would potentially cost thousands to update.
- Looks matter. Rental properties are more likely to be rented if they look appealing, so make sure you are able to make the landscaping, siding and interior apartments look good enough that they will appeal to renters.
- Time is money. The cost of renovations is obviously paramount, but consider your time as well. How long will it take before the property can be rented? The better the condition of the property is now, the sooner you’ll be able to start seeing return on your investment.
Renting the Property
At the end of the day, multi-family rental properties will only pay big dividends if you can fill them with tenants. This is always going to be a bit of a dice roll, but there are ways to get a sense of how likely you are to fill all the units in your property, and ways to shift the odds in your favor.
- Look for competing supply. Sometimes the nature of construction cycles can lead to an overabundance of apartments and other rental properties in a concentrated area. Look into the locations of similar properties in the area, and investigate new construction permits to find out if too many competing properties are about to enter the market.
- Check occupancy rates. Look into current and historic occupancy rates for your property, and other similar properties in the area. Vacancy rates of 7% or higher often reflect a difficult market area, but could also mean that the property is simply mismanaged or in need of renovation.
- Have a marketing strategy. More tenants mean more income, so you need to have a solid marketing in place to ensure that your property is visible to potential tenants.
Multi-family rental properties have the potential to be some of the best investments you can make. These properties also come with a higher price tag than single-family homes, which means it’s even more essential to weigh the risks and do your homework before taking the plunge.
If you own rental property, you may be looking for a property manager. Son-Rise Property Management has been serving the property management needs of Bellingham and Whatcom County since 1996. Contact us today to see how we can help you find a rental property for your family or manage your rental properties.
