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Scaling Up: Transitioning from Single-Family to Multi-Family Rentals

Man’s hand placing a coin with a tree. Concept of scaling up rental property investing.Moving up to multi-family rental properties from single-family investments can help a portfolio of investments grow and open up new income options. It’s crucial to first understand any potential difficulties with multifamily leases. Purchasing a multi-family home can frequently be a more time-consuming and expensive procedure than purchasing a single-family rental. However, it is possible to successfully transition to your new investment strategy by understanding the fundamentals of multifamily property investing.

Choose a Property Type

Perhaps the first thing to understand about multi-family rental houses is that there are two main categories. A multifamily building with four or fewer units is considered residential, whereas a property with more than four units is typically considered commercial. The size of the multifamily property you wish to acquire will influence your inquiry, evaluation, and pricing in numerous ways. For instance, multifamily properties with four or fewer units are typically financed with residential mortgages, a similar process to purchasing single-family homes. While commercial real estate is priced using a value formula rather than on the market value of similar properties, it is still acquired using commercial financing. Those who have never purchased a commercial property face a significant learning curve, which is why the majority of first-time landlords opt for smaller multifamily properties.

More Units = More Preparation

Even if you decide to purchase a multifamily home with four or fewer units, greater planning is required than when purchasing single-family rental properties. For instance, location is always a crucial component of a profitable rental. But for multifamily properties, location can be even more significant, particularly the property’s proximity to public transportation and other amenities. In addition, it’s essential to evaluate the area’s cost of living, crime rate, and average income. While online number searches can be useful, they do not always provide the full picture. This is particularly true in regions that have seen recent changes (whether favorable or unfavorable). Along with your other homework, schedule some time to drive through the area and visit the local police station to obtain a more accurate picture of the area.

Prepare Your Finances

Research lenders and organize your finances before starting your hunt for a home. Select a lender with a track record of assisting investors with the acquisition of the kind of property you intend to acquire. Additionally, you will need to provide evidence of your creditworthiness, such as income and expense statements from your current rental properties. Be prepared to provide additional documents if requested to qualify for a loan on a multifamily property.

Hire the Right People

Having the right expertise on your team is essential for expanding up to multi-family buildings. For instance, you’ll need to choose and work with a real estate agent who has the necessary training and expertise. Whenever feasible, locate a realtor who specializes in the type of multifamily property you intend to purchase. A reputable property management company may also be able to provide you with local knowledge. They significantly enhance the value of your purchase and your ownership of your property because they are local market experts.

Are you ready to get started? To find out more about the many high-quality services we offer, get in touch with your nearby Real Property Management office.

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