6 Basic Principles to Understand About Multi-Unit Home Ownership!

May 22, 2022 by No Comments

While historically owning investment real estate is considered a quality and relatively safe vehicle, it takes some knowledge, understanding, planning and carefully choosing the right/appropriate property to do so! After more than 15 years as a licensed real estate seller in New York State and someone who has repeatedly invested in residential rental properties, I firmly believe that it is important and significant for potential investors to pay close attention to these 6 basic principles, about the realities, etc., of doing it. With that in mind, this article will attempt, briefly, to consider, examine, review, and discuss these.

one. Initial payment, usually higher: When you buy a multi-family home, unless you live there, lenders look at it differently, from the perspective of how much is required as a down payment, if a mortgage is used as part of the purchase. While the rules and conditions often differ, the normal conventional mortgage for a single-family home is 20%, but for a non-owner-occupied home it is 25%.

two. Additional Need/Anticipated Income/Income/Cash Flow: Lenders typically, when offering mortgages on a single family home, base their decisions on the appraised value and a set of numbers, ratios, etc., that are believed to represent the borrower’s ability to pay, etc. However, with multi-family scenarios, a key requirement is based on projected rental income, projected income, and cash flow. This is done to minimize the lender’s risks!

3. All costs: Know all the costs of owning and operating the specific property, right from the start. These considerations should consider: the owner’s responsibilities for real estate taxes, utilities, maintenance, repairs, income, cleaning between tenants, maintenance of common areas and/or grounds, etc. All these expenses must be taken into account in the decision to buy a specific property!

Four. 6% rule: A clever rule of thumb, I call it, the 6% rule. This means that revenue (stated conservatively), minus all property costs (paid monthly or averaged, that way), is cash flow. This means that unless/until the actual cash flow is at least 6% positive.

5. The 75% occupancy guide: When calculating projected revenue, keep in mind that vacancies will occur and be prepared. So, after determining income, using market – rates – rents, reduce the number, to 75%, to account for this contingency!

6. Facility / rental demand: Consider the specific real estate/rental housing market, and whether it is difficult or challenging to rent, when there are vacancies. Find out how long, on average, it takes to rent similar units in this geographic area.

Position yourself, to make the best real estate decisions, considering at least these 6 relevant factors, before investing in a specific property! Will you proceed, with discipline, to be a smart buyer/investor?

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