What to Look for in a Multi-family Property?

A multi-family property can be a place to live as well as a great investment, but how do you find the right one? One of the smartest ways to build wealth is by buying real estate (particularly rental properties). Investors realize the value that rental properties can bring not just in terms of monthly cash flow but also in appreciation and deductions. Most new investors can’t afford to buy an investment and their primary property. Therefore, duplexes or multi-family units are desirable. As people begin considering home ownership, owning multi-unit homes is becoming very popular among first-time buyers.  Among the many advantages of multi-family housing is the ability for the owner to live in one portion of the home, while covering the mortgage expenses with rental income from the other portion(s) of the home. Living in a multi-family home while renting other units is a great way to build wealth, but it’s not as simple as some make it sound. Here are four things to keep in mind:

1) Buying a multi-family home will limit your location options.
On Oahu, common areas to find multi-family properties are Kaimuki-Palolo, Kalihi, and Waipahu. You might have an even more difficult time finding a multi-family property that you’d be happy living in if you live in the urban or metro part of the island. But if you’re not extremely picky about the neighborhood you live in now, this could be your opportunity to get in.

2) Financing a multi-family property is tricky but doable.
It may seem impossible to buy a duplex or multi-family unit with your budget, but the reality is it might not be as hard as you think. If you’re buying an owner-occupied duplex, most lenders will be able to use the current or potential rental income from the second unit to help you qualify for the purchase. If you plan to purchase a multi-family property that contains more than 4 units, you will probably be required to apply for commercial financing.  The commercial lending process is entirely different from traditional mortgage funding for individuals. Therefore, you should discuss your options with a lender prior to deciding which type of property you plan to purchase.

3) Crunch the numbers.

Crunch the number to determine whether a specific property is of value with your needs. Some figures to consider are: number of units, current or potential rents, expenses, and estimates on repairs needed. Crunching the numbers will provide you with an immediate insight on direct competition, and what you can expect from your investment. Crunching the numbers will inform you as to whether the investment is worth potential income, or more importantly, if you will be spending much more than what will be returned. It is absolutely crucial to stick to the numbers.

4) Budget for vacancies.
Keep in mind that, as with any rental property, you do risk facing a month or two where your property may be unoccupied.  You will need to be prepared to cover the costs in the event that one or more of your property units are empty for a short period of time.  If you already know that your financial situation could not possibly support this loss of income, then you need to reconsider whether owning a multi-family home is a good idea for you.

Buying a multi-family property is a good move for many first-time investors or buyers who want to purchase a home while reducing their overhead costs and securing a new source of income.  The process for finding a multi-family home is very much like the process used to find a traditional, single-family property. By following these simple suggestions, you are sure to find the best possible multi-family property for your specific situation. Careful budgeting and financial preparation will give you a definite advantage when you choose to purchase and rent out a multi-unit property.

About the Author

Brandon Lau grew up in Kailua and currently resides in Honolulu with his wife Andee and children Caylah, Elijah, and David. His eighteen years in real estate led him to become a Partner at ChaneyBrooks Choice Advisors. Over the past 10 years he has developed the team and systems that has created a high level of service and value for his clients.

What differentiates Brandon and his team is his consultative approach to real estate. He advises clients with relevant data and expert insight to help them make the best choices in real estate. Good choices in planning for long term dispositions, negotiating for the best price or knowing when not to pursue an investment are ways his consultative services will give you an advantage in the marketplace. His bottom line is providing service with the utmost integrity and expertise.