4 Ways To Help Insure That the Multifamily Property You Buy Results In a Profit

Real estate investors have been making money for years investing in multifamily property. So what’s the allure of multifamily real estate and what can you do to help insure that any investment you make will result in a profit?

For starters, let’s understand what multifamily property is. It is rental income property that includes one or more family units such as a duplex containing two units and apartment complexes with mass units. In other words, rental properties composed of multiple family rental units are in fact deemed multifamily property.

The main benefit of purchasing multifamily properties is that they are capable of producing an income stream from rents that enable real estate investors to support the debt. This concept (otherwise known as "using other people's money") is what entices investors and drives most multifamily property investment decisions.

Consequently, how much income a rental property generates compared to the mortgage payment and other obligations are what insure a profitable investment. And in this article we’ll discuss four essentials you can incorporate to help impart that principal when buying multifamily property.

1) Foremost, you do not want to purchase income property encumbered with a loan that places an outrageous financial load on either yourself or the property. In other words, you need to obtain sound financing. Along these lines, though, bear in mind that loan companies structure financing in line with the property's potential income stream and financial strength. So you are always apt to negotiate a more favorable loan-to-value and interest rate when you present the bank with adequate and accurate projections regarding the multifamily property’s cash flows and earnings potential.

2) Secondly, you must carefully gauge the rents and vacancy rates in your local area by conducting a survey of the rental market. Your investment wholly depends on the amount of rent that tenants are willing to pay to live in your apartment complex, so watch carefully for vacancy and rental rate trends in nearby neighborhoods that surround the subject property. Obviously, low vacancy levels indicate a shortage of units and could be sign of an impending upswing in rents, whereas an abundance of vacancies means that tenants will be scarce and that you may have to resort to lower rents in desperation to attract tenants from your competition.

3) Thirdly, pay close attention to whether the property offers you an opportunity to contribute to profit with upgrades that could result in higher rents. Money is routinely made by investors, for instance, when the property is in need of repair and has lower rents. If the location is in a good neighborhood, or perhaps one turning around for the better, and remodeling costs could be offset with a positive impact on vacancy or rents, then purchasing a “fixer” multifamily property can provide you with a profitable investment opportunity.

4) Finally, be sure to validate all the numbers concerning the property yourself. It is not wise to simply accept the cash flow and rate of return projections given to you by the owner or agent. This is not difficult with real estate investment software. Simply plug in the financials and decide based upon your analysis whether the multifamily property is profitable enough for you to make the investment and could even result in the ammunition you need to negotiate a better purchase price.

James Kobzeff is a real estate professional with over thirty years experience as a multifamily property specialist and is the owner/developer of ProAPOD Real Estate Investment Software.