Real estate investors in Dallas often want to diversify their portfolios and increase their rental income. Incorporating multi-family properties into your investments could be a really smart move.
Multi-family properties, single buildings consisting of two or more units, offer several advantages over single-family investments. Real estate investors are able to generate more rental income in multi-family properties than what’s possible with just a single-family property, and they tend to have lower vacancy rates than single-family homes. However, investing in multi-family properties requires an entirely different approach than investing in single-family homes, and it’s good to know a little more about this before you take a leap. Here are a few things that all real estate investors should know.
Pros and Cons of Investing in Multi-Family Properties:
Multi-family properties are properties that are designed to house multiple families or individuals. They typically have multiple units, each with their own kitchen, living room, and bedroom(s). Think of properties like apartment buildings, townhouses, or duplexes. Multi-family properties are typically purchased by real estate investors with a steady stream of rental income in mind.
Pros:
1. Higher Rental Income: Multi-family properties have higher rental income potential since they can house more than one person or one family. This means that real estate investors can generate more income from renting out multiple units in a multi-family property than they can from a single-family home.
2. Diversification: Investing in multi-family properties can offer diversification since the investment is spread across multiple units. You’re not going to be reliant on just one tenant, but having multiple tenants at the same location is basically like not having all your eggs in one basket.
3. Lower Vacancy Risk: Since multi-family properties can house multiple families or individuals, many real estate investors like the idea of having a lower risk of vacancy. And with a lower risk of vacancy comes a more consistent stream of rental income. And let’s say you have one unit vacant, but you’re still renting the other units out, this also can make the investment less risky in general.
Cons:
1. Higher Maintenance Costs: Multi-family properties generally have higher maintenance costs than single-family homes. With more units to maintain, you can expect the overall cost of repairs and upkeep to be more.
2. More Difficult to Finance: To get a loan for a multi-family property is different than your standard single family home. So getting a loan is more difficult. This is because banks and lenders are more cautious about approving loans for multi-family properties due to the higher risk of default. Typically investors would let their investment properties go first before they’d stop paying their mortgage on their own personal house, and banks know this. So that does play into the loan approval process, and the type of loans that are offered.
3. Lower Appreciation: Multi-family properties tend to appreciate at a lower rate than single-family homes. This is because multi-family properties are typically in lower demand among home buyers. Not every real estate investor is going to be interested in a multi-family property, so the buyer pool is lower. When there’s greater demand prices are driven up, but when demand is lower, values/prices increase at a much slower rate.
Regardless of which option you choose, it is important to do your research and work with a professional real estate agent who can guide you through the investment process. A real estate agent can help you find the right property that fits your specific investment goals and provide valuable insights into the local real estate market. With the right strategy and guidance, investing in real estate in Dallas can be a profitable and rewarding experience.
Here are ten things to look for when buying multi-family properties:
1. Location: As with any real estate investment, location is key. Look for multi-family properties in desirable neighborhoods with low crime rates and good schools.
2. Number of units: Consider the number of units in the building and how many are currently occupied. More units generally mean more rental income, but with that comes more responsibility regarding property management and more maintenance to contend with.
3. Condition of the property: Inspect the property carefully to identify any repairs or renovations that may be necessary. Make sure to budget for these expenses when you’re figuring your investment calculations.
4. Rental income: Calculate the current and potential rental income for each unit, taking into account any rent increases you may be able to implement. If the current seller has documents from their accountant regarding the past several years of rental income, that can be helpful. Most legitimate sellers should be willing to provide documentation regarding the rental income, however just know that those records may or may not be correct.
5. Expenses: Determine the operating expenses for the property, including utilities, maintenance, property management fees, insurance and taxes.
6. Cash flow: Calculate your expected cash flow from the property after all expenses are paid.
7. Financing options: Consider your financing options, including traditional mortgages, commercial loans, and private financing. You may have to check with multiple banks to see what specific loan products they offer since every financial institution is different.
8. Property management: Decide whether you will manage the property yourself or hire a property management company to handle day-to-day operations. If hiring a company, make sure you talk with some of their current clients to get a better understanding of what they like and don’t like about the company they’re working with.
9. Tenant screening: Develop a thorough screening process for potential tenants to ensure that you select reliable, responsible renters. If you don’t know how to do this, you may consider hiring a property management company that also takes care of this as well. Many real estate investors let the professionals handle the grunt work. To many, it’s worth paying those property management fees to let someone else handle that kind of stuff.
10. Exit strategy: Have a plan in place for selling the property when the time comes. Consider whether you will hold onto the property long-term or sell it for a profit.
Investing in multi-family properties can be a great way to diversify your portfolio and increase your rental income. However, it’s important to approach these investments with a different mindset than single-family homes. By considering these ten factors when buying multi-family properties, you can make smart investment decisions that will pay off in the long run. Ready to invest in multi-family properties in Dallas? Reach out to Jamie Buys Houses to find out how we can help! 972-318-9500