Have you been thinking about buying a multifamily investment property in the United States but you’ve become overwhelmed and don’t quite know how to get started? If so, you’ve come to the right place!
There’s no doubt that multifamily investment properties are one of the absolute best investments that any investor can make in 2020. Thanks to the popularity of these Investments there is a wide variety of blogs, websites, articles and infomercials online which teach different styles, or ways of investing in multifamily properties.
Sadly, the average first-time investor is overwhelmed with the onslaught of information that they have access to and it’s easy for a newbie investor to get so overwhelmed that they do not know how actually take their first step with investing in their very first multi-family property.
This article will provide you with a step-by-step plan that you can use for investing in your first multi-family investment property. We assure you that all of the steps in this article are “doable” so if you’re ready to purchase your first apartment building, condo, town home, this article provides you with an action plan that you can use for buying your first multifamily investment property.
Step #1 – Get Pre-Approved For Financing, Unless You Intend On Paying Cash For A Multifamily Property
Unless you plan on paying cash for your first multifamily property, you’re going to have to get pre-approved for financing. The good news is that as of January 2020, interest rates remain at about 3.5%, so since interest rates remain historically low and there’s never been a perfect time than right now to buy your first multi-family property.
For getting pre-approved for financing it’s important that you follow the same steps that you took to get pre-approved for your first mortgage loan on your primary residence. You should pull a copy of your three in one credit report. View each credit report and confirm that there are not any outstanding bills, debts or errors on your credit reports which can make it difficult for you to qualify for a low-interest rate.
During the process of contacting lenders, you should also confirm that the mortgage loan can be used for purchasing a multi-family investment property since each lender has different financing requirements.
If you can’t get approved for financing at this time, no problem! There are a wide variety of options out there that you could turn to you for financing your first deal. Some of those options include hard money loans and crowdfunding. Keep in mind that alternative sources of financing do come with higher interest rates so it’s best to review these options carefully before you decide to choose one of those options.
Not interested in choosing alternative financing? One of the last options that you should consider for financing a multi-family property deal is to take on a partner.
As with choosing alternative financing, partnering with someone on a multi-family deal also comes with its own set of risks as well to so it’s critical to approach potential partners carefully and verify that they are indeed an accredited investor who is able to adequately finance a multi-family deal that you bring to them.
Your last option for getting started with multi-family properties, if you didn’t want to choose a hard money loan, crowdfunding, or work with a partner, is to consider getting started with wholesaling.
Wholesaling is one of the top ways that many multifamily investors get started in this industry because, all that’s involved in finding a great deal, getting it under contract and then taking that deal to another investor who is willing to pay more money than what you have got that property under contract for it.
With wholesaling, if you’re able to sell the property for more than what you’ve got it under contract for, you can then utilize your proceeds from the sale as your down payment on the first multifamily property that you choose to purchase yourself.
Step #2 – Hire A Real Estate Agent To Help You Find Properties
Once you get pre-approved for financing, the next step is to hire a real estate agent.
This is obviously a very important part of the process of finding a multi-family investment property because you can only go so far as an investor with searching for properties over the internet on your own.
Your goal as a multifamily investor should be to actually visit the properties that you purchase in person to confirm if they’re worth spending your time and hard-earned money investing in.
The key to success with hiring a great real estate agent is to use the internet to your advantage and thoroughly research a real estate agent before you decide to contact them. Thanks to websites like Yelp, Facebook, Better Business Bureau and Google my Business, you can easily know everything that there is to know about a real estate agent before you choose to hire them including reading feedback from their former clients so that you can have confidence that they will be the right agent for your real estate needs.
If you don’t feel comfortable searching for a real estate agent over the internet, one of the best ways to hire an agent is to contact your network of personal and professional contacts to find out if someone you know has used the services of a real estate agent within the last 30 to 90 days.
By starting with the people that you know, you may be able to find a great real estate agent in the city, state or town that you want to purchase a multi-family property without having to spend the time and effort of searching for an agent online yourself.
#3 – Have A Clear Idea Of The Multifamily Property That You’re Searching For
As a new multifamily investor, it’s imperative that you have a very clear idea of the type of multi-family property that you’re going to be searching for.
Do you want to purchase a duplex, condos, or town home? This question is important to ask because there is a wide variety of multifamily properties available on the market today and it’s important to know specifically what type of property that you want to purchase before you actually start looking for one.
Besides defining the type of property that you want to purchase, you should also be clear about where you want to purchase your property.
Are you interested in buying a multi-family property that’s downtown or in a suburban location?
Should the property be close to a college, local attractions, amenities, or things to do in the area?
What about ease of access? Will the property be close to the local highway or major sources of public transportation?
Do you want your multifamily property to be in a walkable location that’s also close to shops, stores, restaurants and things that people like to do in the area?
Are you comfortable with working on a fixer-upper multi-family investment property? This is also an important question to ask yourself because, you’re going to come across at least one apartment building, duplex or triplex out there which is going to need work. You have to ask yourself if the property is going to be worth investing the money to fix it up in order to get it to rent ready.
These are all important questions to ask yourself because they will also help your agent to have criteria of the exact multifamily property that you want them to search for.
The great thing about hiring a real estate agent is that the agent does not get paid until the deal closes because they work on a commission basis so they have to provide you with the service that you need or they don’t get paid.
#4 – Get Out There And Start Looking At Properties
Once your real estate agent provides you with a list of multifamily properties that match your search criteria, the next step is to actually go out there and start looking at the list of properties that they’ve given you.
This is the only way that you’re going to find the right property which is going to match your search criteria
#5 – You Have To Do The Numbers!
After searching for properties with your agent, it’s likely that you’ll find at least one property that you may be interested in purchasing.
Before jumping the gun in making an offer, you should always do the numbers to verify that everything about the property makes financial sense. It’’s possible that the current owner may have inflated the rent roll or “fudged” the expenses that the property has so it’s best to thoroughly analyze the books to confirm if it’s the right property for you to purchase or not.
During the process of analyzing the property to verify if it makes financial sense or not it’s also important to be conservative in your analysis, especially when it comes to items like repairs, vacancies, and Property Management.
To help with your analysis of a multi-family property, we recommend using a rental property calculator. Thankfully, there are a wide variety of calculators to choose from online that you can use for analyzing a multi-family property before you decide to purchase it.
After doing the hard work to scrutinize a potential multifamily property before purchasing it, if all the numbers add up the next step is to actually make an offer on the property.
As with any investment that you may have made in the past, the key to success with buying a multi-family property is to not pay more money than what the property is really worth.
This may be hard to do in some major cities like Miami or San Francisco, where multi-family properties are often overpriced. You can save yourself the time, money, and hassle of paying more for a property than what it’s worth by taking the time to do your financial due diligence before making an offer on your property.
Once you submit an offer on your property, make sure that it’s contingent upon the property passing inspection because you never want to purchase a multi-family property blindly without having it professionally inspected first.
On the day that the property inspector arrives, you shouldn’t hesitate to trail the inspector and ask plenty of questions because it’ll be an excellent opportunity for you to learn more about the multifamily property that you plan on purchasing.
If the property is going to need renovations, you shouldn’t hesitate to negotiate with the seller if you find if they will be willing to drop their price so that you can make the repairs on the property or should confirm if they will be willing to make those repairs for you.
Let’s say that you are able to negotiate with the seller, in this case, it’s best to ask yourself if the property is really worth purchasing or if it’s in really bad shape you should consider cutting your losses and walking away
The good news about hiring a real estate agent is that if you do decide to move forward with purchasing a property, your agent will be able to assist you with reviewing all the paperwork and sending the documents that you need to your lender and your title company.
Your agent’s efforts will save you that time and money of doing everything yourself while making a process of purchasing your first multifamily property as hassle-free as possible.
Once you’ve closed on the property, the end of the journey is finally here! You could also say that it’s just the beginning because you’re finally going to start the journey of becoming a multi-family owner.
After confirming that the property is in the rent-ready condition it’s best to hire a property management company immediately. It’s never a good idea to decide to manage a multi-family property yourself because there is always a wide variety of other things that you could be doing with your time instead of getting caught up in the day-to-day hassle of self-management.
In this article, we provided you with a step-by-step guide to getting started with investing in your first multi-family investment property.
If you’ve been “sitting on the fence”, reading information online about how to get started, the most important take away from this article that we have for you is that you actually have to implement the things that you read if you truly want to become a multifamily investor.
There may never be a better time in history to invest in multifamily properties. Don’t wait another year to get started! Set a goal to buy your first property in 90 days and you will be amazed at what you can accomplish!