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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 necessary to first educate yourself on the potential difficulties that come with multifamily leases. Buying a multifamily property is typically a more involved process than purchasing single-family rentals, not to mention more expensive initially. The move to your new investing plan can be effective, though, if you master the fundamentals of multifamily real estate investing.

Choose a Property Type

The existence of two fundamental classifications for multi-family rental properties may be the first thing to know. Residential properties are multifamily structures with four or fewer units, while properties with more than four units are typically commercial properties. The size of the multifamily property you wish to acquire will influence your inquiry, evaluation, and pricing in numerous ways. For instance, purchasing single-family homes is similar to using residential mortgages to finance multi-family buildings with four or fewer units. 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. Most rental property owners initially pick smaller multi-family properties because purchasing a commercial property may be fairly difficult for someone who hasn’t gone through the procedure previously.

More Units = More Preparation

Even if you choose to buy a four-unit or smaller multi-family property, there will be more planning needed than when purchasing single-family rentals. 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. Additionally, it is 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 especially true in areas where recent changes (positive or negative) have occurred. 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. Depending on the type of property you wish to purchase, select a lender with a track record of assisting investors with the purchase of that type of property. Additionally, you’ll need to gather proof of your trustworthiness, such as revenue and cost reports from your present 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 will need to locate and employ a real estate agent with the necessary skills and experience. Try to discover one that focuses on the kind of multi-family home you wish 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? For more information about our many high-quality services, get in touch with your nearby Real Property Management office.

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