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Questions to Ask before Investing in a Multi-family Property

These days, several individuals think that buying multi-family properties will help them make more money in a shorter period of time. While this may often be true, there are a few questions you should ask before signing any paperwork or agreeing to buy this type of property for investment purposes.

Where’s the Property Situated?

The area and community in which a multi-family property is situated is of extreme importance, and while it’s recommended that you obtain information pertaining to the local economy and its employment levels, performing an in-depth study of the specific suburb is also crucial. 

For instance, is the suburb that the property is in already popular and/or is it at least becoming more popular and sought after? Are other aspects such as average household size and age demographics conducive to multi-family properties? How easily accessible is public transportation to and from the area?

What Condition is the Property in?

As with any property that’s being purchased for investment purposes, it’s physical condition must be thoroughly assessed before any decisions are made. 

Aspects such as the foundation, roofing, heating and air-conditioning systems, plumbing, electrical fixtures and everything else must be professionally inspected to ensure that you won’t be saddled with unexpected repair bills after signing the mortgage paperwork. 

In cases where repairs may need to be carried out in the near future, it can sometimes provide an opportunity to negotiate on the selling price. Keep in mind though, that some properties may simply be beyond being able to be feasibly repaired.

What is the Property’s Vacancy Rate?

Another crucial aspect to check is the property’s average vacancy rate. If there has consistently been more than a 7% to 8% or higher rate of vacancy, it can indicate that it’s in an undesirable location or in need of major repair or renovation work. However, there may be cases where high vacancy rates are the direct result of poor property management as well. 

Multi-family homes require hands-on property management to ensure good tenant relations and that the necessary maintenance is performed promptly. Reviewing current and past occupancy rates will provide a good indication of whether a specific property will be worth investing in or not.

Who will be Handling the Property Management?

Before signing on the dotted line to purchase that multi-family dwelling for investment purposes, you’ll need to decide who will be handling the property management. Will you step up to the plate or are you going to hand the reins over to an experienced property manager instead? 

If you choose the option of professional rental property management, keep in mind that you’ll need to factor the additional cost into your budget. Professional rental property management can cost anywhere between 4% and 8% of the monthly rental income that’s derived from your tenants. 

Before signing up with a rental property management agent or company, ensure that you check their online ratings and reviews. This will help ensure that the one you choose to work with will give you what you’ll be paying for.

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