Buying a Multifamily Home Investment Property in 6 Steps

One of the most difficult tasks for a real estate investor is deciding which type of property to buy and what steps to take in order to maximize your return on investment. Here, we break down our 6-step process for purchasing multifamily homes.

This “steps to buying a multifamily property” is an article that will help you buy your first investment property. It will also give you some tips on how to choose the best type of property for your needs.

Purchasing a multifamily house with two or more units differs from purchasing a single-family home since it is an investment that requires a financing structured expressly for multifamily properties. Purchasing a multifamily house involves six phases, including studying the community and selecting a lender, and the full process may take two or three weeks.

Contact Visio Lending if you need to finance a multifamily property. They’re a respectable lender that specializes in one to four-unit houses. They provide affordable rates to prime borrowers and may prequalify you in a matter of minutes.

Visit Visio Lending for more information. for more information.

The six stages to purchasing a multifamily investment property are as follows:

1. Do some research on potential investment areas.

Choosing the ideal community to invest in is the first step in purchasing a multifamily house. Even if you don’t live in the area, you want it to be appealing to renters so that each unit can be rented fast. You should first choose a few communities with multifamily houses for sale, and then do research to reduce it down to one community.

The following are some of the factors to look for while looking for a multifamily home investment neighborhood:

• Tenants may be put off by poor general public and private school ratings.
• Public parking: Tenants need parking for themselves and their visitors.
• Parks, restaurants, and shopping should all be within walking distance.
• The neighborhood should be walkable.
• Shops in the neighborhood should be prospering, and businesses should be open.
• Overall condition of the neighborhood: Streetlights should operate, garbage should be cleaned up, and sidewalks and residences should be well-kept.
• Tenants desire convenient access to and from job, education, and other essentials through public transit.
• Other properties’ state: Run-down structures hinder potential tenants from renting in the area.

This research may be done on your computer, with the help of a local real estate agent, or by driving about and physically inspecting communities. We urge that you undertake all three of these activities to get as much local information as possible. You don’t want to put a lot of money into a home that will lose value due to its location in the future.

See what communities have multifamily homes for sale and how much they cost on sites like Zillow and LoopNet. On Zillow, for example, you may search by property type and choose a multifamily home from the “apartment” for sale section. LoopNet is a commercial real estate database that allows you to search by multifamily properties, city, or ZIP code. Both sites are completely free to use while looking for multifamily properties.

After you’ve done your homework online, take a drive around the neighborhood during the day and at night to check how the traffic, parking, and general neighborhood activities are. Then engage the assistance of a real estate agent to verify your knowledge and to assist you in becoming even better acquainted with the local occurrences.

Reduce the number of neighborhoods on your list to just one.

You should limit it down to one community that you want to target once you’ve looked around for a few communities around you and finished your study. This one community will be within walking distance of your home and will have most of the facilities and a solid school district stated above.

Because there are fewer multifamily homes on the market than single-family residences, you may need to be open to alternative places near your ideal community. For example, there are just 264 duplexes and triplexes for sale in Miami as of this writing, accounting for only 4.5 percent of all residences for sale in the city.

A decent rule of thumb is to purchase in an area that is less than an hour away from your home. This makes driving to the property, doing inspections, meeting contractors, or making a repair call much simpler. It’s important to remember that you may patch up the multifamily property but not the area.

Consider turnkey real estate if you want to purchase a multifamily house that isn’t in your neighborhood. Turnkey homes come with renters and property managers already in place, enabling you to receive passive income without having to maintain the property. Roofstock allows you to search for turnkey properties in up to 40 different areas and invest in the one that’s best for you.

Roofstock is a great place to go.

2. Choose Your Lender & Get a Pre-approval Letter

After you’ve decided on an area to invest in, you’ll need to find a lender and get a pre-approval letter. You’ll need to select a lender in your state that offers multifamily loans, has a simple application procedure, and provides excellent customer service. They will then provide you a pre-approval letter, which is required in order to make an offer on a home.

How to Pick the Best Lender

The internet is the ideal location to look for a loan for your multifamily property. You’ll need to locate someone that specializes in these properties, which might be tough to find in your region since it’s a specialty lending field. The following is a list of commercial multifamily lenders. We also offer a comprehensive multifamily financing guide that covers lenders such as Visio Lending and Patch of Land.

A lender would often finance a multifamily property with two to four units, and since it’s an investment property loan, you don’t have to reside in one of the units.

The following are some criteria to consider while selecting a multifamily lender:

• Rates: Compare rates from several lenders and select the one that offers the best deal.
• Pay attention to the conditions of the loan; some, such as hard money loans, have short durations of one to three years, while others have extended terms of up to 30 years.
• Topics addressed include: Check to see whether the lender will lend in your state.
• Customer service: You want to be able to contact the lender quickly, so look at its website for information on its hours of operation and how to reach them through email, phone, or chat.
• Allowable property conditions: If you’re purchasing a multifamily that needs to be rehabbed, check sure the lender provides rehab loans, since not all do.

You may be able to deal with a lender via a reference from a local real estate agent, another real estate investor, or your bank or credit union, but it will be more difficult to discover. Check out our guides to investment property loans, multifamily financing, and our in-depth FHA multifamily loan page for additional information on where to obtain a multifamily loan, how to apply, and what sorts of loans are available.

Obtain a Letter of Pre-approval

You’ll be asked for some basic financial information after you’ve found a lender with whom you feel comfortable. This will assist you in being prequalified or pre-approved.

A pre-approval letter from the lender should inform you how much you may borrow and what interest rates you can expect. This rate, however, may fluctuate until you lock it up with your lender.

Before dealing with a real estate agent or placing an offer on a property, a pre-approval letter is usually required. It demonstrates to the sellers or their agency that you’re a serious buyer who can afford the home. This differs from a single-family house purchase in that multifamily purchases are often investments, making it more difficult for some to get financing.

The following information is required for a pre-approval letter:

• Your credit rating (check yours for free)
• Bank statements over the last two to three months
• Tax returns or pay stubs from the previous two years
• previous work experience

Set Your Budget with a Pre-Approval Letter

You may establish your budget after you obtain a pre-approval letter, which does not have to be the same amount as your pre-approval letter. You don’t want to go overboard, so make a budget that includes your pre-approval amount as well as money for repairs and upkeep, as well as paying your carrying expenses if a unit is unoccupied.

When deciding on a budget, keep the following in mind:

• Closing expenses are typically 2% to 5% of the property’s sales price and include loan fees, title insurance, property insurance, and property taxes. The greater the sales price, the more you’ll have to pay in closing fees.
• Monthly recurrent charges such as your mortgage, taxes, insurance, and utilities are known as carrying costs.
• Consider how much you’ll have to spend if the multifamily property has to be rehabbed before it can be rented out.
• Ongoing repair costs: These are a variable expense that might arise at any moment when anything has to be repaired.
• Timetable: Your timeline affects our budget, and the longer a refurbishment takes, the greater your carrying expenses will be.

Basically, you want to make sure you can afford to buy the house, fix it up if required, and pay all of the monthly expenses, including any necessary repairs or upkeep. Keep the pre-approval letter in mind as a maximum purchase price, and then buy a home that you can afford, even if it’s not completely occupied.

Discuss the property’s occupancy with your lender. Some lenders don’t mind if a property isn’t completely occupied, while others like it to be at least 90% occupied. The same may be said about seasoning, which refers to how long a property has been inhabited or, in this instance, leased. Before approving a multifamily loan, some lenders need 90 days to six months of seasoning.

3. Use the services of a real estate agent.

It’s excellent to know your budget and do your own research on communities, but in the end, you’ll want to deal with a real estate agent who is familiar with multifamily homes and the area. A real estate agent may assist you in locating a home, scheduling showings, and negotiating an offer. Because most multifamily homes are placed on the Multiple Listing Service by real estate agents, working with one is considerably simpler than doing it alone.

Due to the possibility of tenant occupants, most multifamily buildings need prior notification for showings. Dealing with a real estate agent who is an investor or has expertise working with investors is a fantastic option. This is critical because they must understand what to look for in an investment property, how to negotiate a contract based on similar properties and rentals, and what questions to ask.

They may be comparing cap rates amongst investment properties, requesting rent rolls, or inquiring about tenant payment histories, for example. A single-family real estate agent will not know to ask these questions and may not get you the best bargain, or they may miss something vital, such as a renter with a history of late payments.

A multifamily real estate agent will also have access to CoStar, which has a database of over 500,000 commercial properties and provides multifamily property analysis, area information, and a property management directory.

Where to Look for a Real Estate Agent

A real estate agent might be found via your mortgage lender, attorney, certified public accountant, or a friend or family member. It’s a good idea to inquire about the real estate agents other landlords and investors use and how happy they are. You may also contact a local real estate agency and request a representative from the business section or a multifamily specialist.

Some qualities to seek for in a multifamily real estate agent include:

• Experience: Look for a real estate agent that has worked with investors and multifamily properties for at least two years.
• Make sure your real estate agent specializes in investment homes. Niche/specialty: Most real estate agents specialize in something, so make sure yours does as well.
• Choose someone who is available to work around your schedule rather than the other way around.
• The real estate agent’s office or primary business location should be close to the community you wish to buy in.

Check out our post on advice for choosing a real estate agent for additional information on how to choose a good real estate agent and what questions to ask.

4. Focus your search on a single multifamily property.

It’s time to narrow down your search to one multifamily property that you want to buy once you’ve investigated communities, been pre-approved, and picked a real estate agent to work with.

While your budget and preferred location should help you narrow down your options, it’s also critical to choose a home that will provide cash flow both now and in the future.

Other factors to think about to help you narrow down your search are:

• Property condition: Consider how much time, money, and effort it will take to get the property ready to rent.
• Look at the existing rentals and compare them to the area’s average rates to determine what the property should rent for, which might impact your purchase choice.
• Revenue & expenses: Look at what rental revenues are coming in and what the current expenses are and see if it makes sense, remember to add in your approximate carrying costs to see if you will be cash-flow positive
• Vacancy rate: Look for a vacancy rate of less than 10% and calculate how long each unit is unoccupied per year to include into your carrying expenses.

Because purchasing a multifamily property is such a large financial investment, you want to make the best selection possible. Watch out for red flags including no signed leases, low security deposits, and missing documents. You’ll want to know what you’re getting into if you’re an investor, particularly if you’re a novice investment. Verify tenant applications, job verifications, proof of income, and rent receipts personally.

Consider investing in turnkey real estate to reduce the hazards of owning a multifamily house. Roofstock provides a large number of turnkey property listings that you can sort by price, location, and other factors to locate the best one for you. It provides you with well-established investment properties that are currently producing cash flow, lowering your financial risk.

Roofstock is a great place to go.

5. Make a Multifamily Property Offer

It’s time to make an offer when you’ve reduced your search to only one multifamily property. This is where your real estate agent will take over and where your pre-approval letter, along with an earnest money deposit, will be required. Your offer should be conditional on an appraisal and your ability to pay.

This implies that the property must appraise for at least the agreed-upon sales price, or you will not be required to buy it. This also implies that if you were completely honest on your application and your loan was denied due to no fault of your own, you will be refunded your deposit.

Your deposit is usually a “good faith” deposit, which means it removes the property off the market for you. For multifamily buildings, a deposit of 5% to 10% of the purchase price is typical, and it’s paid to your agent to place in an escrow account until settlement. The title firm then distributes it to the seller.

Because you’ll need to do due research on the property’s rental history, an offer on a multifamily property normally contains more stipulations than a single-family house. Due diligence is a specific amount of time, usually 15 days, during which the purchasers will get the rent roll, tenant payment history, utility bills, and other appropriate papers that they might request and inspect before determining whether or not to proceed with their offer.

6. Get Funding & Close on the Property

It’s time to confirm your financing once you’ve placed an offer on the multifamily property and delivered your pre-approval letter. When you get a financing commitment, which is more powerful than a pre-approval letter since the lender has more information and has had more time to analyze your information, as well as the Purchase agreement, than when you receive a pre-approval letter.

The lender will typically need the following in order to finance the loan:

• Fill out the mortgage application completely.
• If there is a charge, it will be specified in the application.
• Documentation proving the source of the downpayment
• Specifications of the property
• Current Assets and Liabilities List
• Appraisal of property
• Purchase agreement
• Rent roll and lease copies

It’s time to close on the property once the lender has authorized the financing. The real estate agent will arrange for a suitable closing date for all parties. Closing takes roughly 60 to 90 minutes and takes place at the title firm on a work day.

If you don’t already have one, your real estate agent will propose one. Bring your identification, a checkbook for incidentals, and certified monies with you. The closing expenses and the quantity of money you’ll need to bring with you will be determined by your lender.

Before you go to closing, you’ll need to obtain both property and landlord insurance. You and the seller will sign the paperwork at closing, the security deposits will be transferred to you, and the keys to your new multifamily property will be handed over to you.

When Buying a Multifamily Home, Here Are Some Questions to Ask

There are some important When Buying a Multifamily Home, Here Are Some Questions to Ask. You want to know more than just the value of the property and how much rent is being collected. You need to consider how to pay for the property, the property’s overall performance and who’s going to manage it.

Some important When Buying a Multifamily Home, Here Are Some Questions to Ask include:

• What sort of loan am I eligible for? Your multifamily property may be financed with a multifamily loan. They’re established up to provide long-term loans to investors who want to acquire and retain homes.
• What do I need to know about the financials of the building? The rent roll, monthly rentals received, monthly costs, occupancy rate, taxes, and average common utility bills are all things you’ll need to know.
• What is the capitalization rate? The net operating income (NOI) to property value ratio is known as the cap rate. The cap rate is calculated by dividing the NOI by the property’s selling price. The cap rate is 10% if the property has a NOI of $100,000 and a sales price of $1 million.
• Who will be in charge of the building? Decide if you’ll be able to handle the building yourself or whether you’ll need to engage a property manager. Keep in mind that property managers often charge between 8% and 12% to operate a property, with extra charges such as renting units, evictions, and paying utilities.

Check out our in-depth guide to multifamily financing for additional information on multifamily loans, including rates, terms, and eligibility.

What Are the Differences Between Purchasing a Single-Family Home and Purchasing a Multifamily Property?

A single-family house is often acquired as a primary residence or as an investment property to rent out to a single tenant. A multifamily property, on the other hand, is often bought as an investment and set up as a business, with commercial expenditures such as common area utilities, taxes, and insurance.

Acquiring a single-family house and purchasing a multifamily property have some major distinctions. In a multifamily property, unlike a single-family house, you may reside in one apartment while renting out the others. In addition, if you’re purchasing a multifamily property, you’ll almost certainly require an investment property loan.

When purchasing a multifamily property, there are a few key differences to keep in mind:

• If the building is leased, there may be several renters.
• Maintaining a record of security deposits
• A rental list
• All of the rental flats have leases.
• Zoning: Make sure the property is designated for what it is, since it is all too typical to encounter a triplex that is only legally classified as a duplex.
• You may reside in one apartment while renting out the others.
• NOI (Net Operating Income) is the revenue minus the required operating expenditures.
• Instead of property insurance, landlords could consider landlord insurance.

“Purchasing a multifamily property varies from buying a single-family house since you’re searching for a home that fulfills your personal wishes and expectations with a single-family home.” Purchasing a multifamily property is similar to purchasing a company, and extra criteria such as tenants, occupancy rates, rental history, and what comparable properties in the region are selling and renting for must all be examined.”

— Kristina Paulter, Cornerstone Law Firm attorney

Most Commonly Asked Questions (FAQs)

Is a Condo considered a Multifamily Residence?

A condo is not a multifamily residence. Despite the fact that a condo is placed in a condominium structure, each unit is typically owned by a single person. However, the structure that holds the separate units is frequently referred to as a multifamily home and may include condominiums and apartments for sale and/or lease. Because this might be misleading, a condo isn’t considered a multifamily residence.

Is it possible to buy a duplex with an FHA loan?

If you plan to live in one of the apartments, you may utilize an FHA loan to purchase a duplex. The FHA has rigorous occupancy criteria for its loans, so you may rent out one of the apartments while living in the other. You can’t utilize the FHA’s multifamily loan to purchase a duplex since a duplex isn’t considered a multifamily property; instead, structures with five or more units are considered multifamily.

What Do I Need to Know Before Purchasing a Fourplex?

Before purchasing a fourplex, you should research the surrounding region, the typical rental prices, and the occupancy and vacancy rates. These may be discovered by doing some internet research on sites such as Zillow or asking a local real estate agent. You should also be aware of the fourplex’s rent roll and the tenant’s payment history. The current owner or property manager may provide you with this information.

How Do I Purchase a Tenanted Multifamily Property?

When purchasing a multifamily house with renters, you should first contact the owner, property manager, or real estate agent to schedule showings and determine if the tenants are aware that the building is for sale. It’s a delicate balancing act to get access to the apartment while without disturbing the rent-paying residents. You should also look at the building’s finances, such as the NOI, rent roll, and whether or not there are any troublesome tenants.

Final Thoughts

Purchasing a multifamily investment property may be a time-consuming process, but if done right, it can also be a successful investment. The most essential thing to remember is that you’ll need to put in the time and effort to do the necessary research in order to select the best multifamily property and lender for you.

Contact Visio Lending if you’ve located a multifamily property you like and want to finance it. It is a respected lender that provides loans for one to four-unit homes. It has reasonable rates for prime borrowers and can prequalify you in as little as a few minutes.

Visit Visio Lending for more information. for more information.

Buying a Multifamily Home Investment Property in 6 Steps. With this article, you will be able to learn the minimum down payment for multi family property and the steps that need to be taken when investing in multifamily properties.

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