The typical progression is for investors is to start out with single family homes and then, after gaining experience and accumulating more operating capital, to graduate to buying multi-family properties. If that’s where you find yourself in your investing career, you may be approaching that next stage with some trepidation. But not to worry. All you have to do is perform some careful due diligence and keep in mind these tips for buying multi-family properties.
1. Live In It
Of course, you’re not wealthy – yet – but that’s your goal. So in the meantime, to make buying multi-family properties a lighter financial burden, you could consider living in one of the units. In fact, if you purchase a building with four units or fewer and you live in it, you could qualify for owner-occupied financing with a small down payment, much less than the usual 20% investors have to put down. Besides cutting down on your own housing expense, you may also qualify sooner for financing to buy other investment properties because your debt-to-income ratio will be lower.
2. Get All the Necessary Information and Documentation
This is a critical tip for buying multi-family properties – that is, to make sure you get detailed paperwork and necessary documentation. This would include, at a minimum, current year’s and previous several years’ income and expense statements, rent rolls, service contracts, and other pertinent reports. You need to make sure the historical information aligns with your expectations.
Don’t forget to look into the area’s and neighborhood’s vacancy rates. You could even talk to tenants to get an honest assessment of the property’s condition and any potential problems. Finally, be sure to see some proof of rental payments and ask to see copies of lease agreements.
3. Value It Carefully
This is a step that can’t be neglected either when buying multi-family properties in Anchorage. For you simply must value a potential property carefully and accurately.
So keep in mind that a multifamily property (unlike, say, a house) is not valued according to its price per square foot, but by its income potential and return on investment. You have to look at what you’ll have left after subtracting property expenses from income. This amount will be your net operating income.
4. Keep Enough Cash on Hand
You also must ensure that you have – and continue to keep from your net operating income – enough cash reserves on hand to cover expenses, especially the large unexpected ones. You also need to take into account the fact that you probably won’t have full occupancy all the time or that tenants will pay on time. According to investment experts, a good way to proceed is to determine whether 50% occupancy will cover all the expenses (mortgage payments, repairs, taxes, insurance, and the rest). Those same experts also recommend taking 10% right off the top of rents as a hedge against market declines, vacancies, and other things out of your control.
5. Get Expert Professional Help
You can, of course, go it alone when buying multi-family properties in Anchorage, but it’s probably better if you don’t. Buying a multi-family property can be an overwhelming experience involving a huge amount of money for investors doing it for the first time. Qualified real estate professionals can help you navigate through the whole complicated process and help you avoid costly mistakes. They can assist you with that critical due diligence.
But if you’re certain you’re ready for buying multi-family properties in Anchorage, then you should probably go for it. Based on your finances, goals, and chosen real estate investment strategy, it can be a lucrative move. We are equipped and ready to provide the expert real estate investing help you may need.