Scaling from a single family home to multifamily properties can be a great way to diversify your portfolio. Here are 5 steps to get started.
When it comes to finding new ways to mix up their portfolio, investors may find that taking that next step toward multifamily properties feels like the natural way to go. There are many reasons why this may be the case. For instance, just think of how much easier it could be to manage one property with 10 units rather than ten single family homes. In other words, greater efficiency.
Although it is important to stick to what works for you as an investor, for those who are considering scaling from single family homes to multifamily properties, here are 5 steps to do so.
1. Choose the Right Area
Don’t just jump into investing in multifamily real estate in the area where you live because it is convenient. Rather, focus on areas that have growing markets. You need to make sure that when you purchase the building, that you will have no trouble finding tenants willing to pay a decent rent. Besides, nobody is going to want to live in an area where the job market isn’t doing well or where there are no easily accessible conveniences, such as grocery stores, gas stations, and so on.
Take your time to choose the right neighborhood. Knowing your budget, too, can help narrow down certain areas.
2. Work With a Team
Finding, buying, and managing a multifamily property is not something that can easily be done alone. Therefore, it is very beneficial if you work with a team. A real estate agent can help you find the right property, an attorney can help make sure everything is lined up legally with the purchase, and a contractor can help you do any necessary repairs once you purchase it.
Then, unless you plan on managing the property yourself, you will want to have a property manager on your side. This person or team will help to handle the day-to-day responsibilities of maintaining rental property. Everything from marketing the property and finding tenants to handling repairs and emergencies as well as rent collection and so much more.
Investing in a single family home is one thing. But multifamily properties are on a much bigger scale and having a multi family property management team in place will ensure that you can keep doing what you do best – investing – while everything else – including the management of your rental properties – are handled appropriately.
3. Develop Your Strategy
Any investor knows that there are many things that must be considered before you purchase properties. You want to consider a few key things, such as:
- How large of a multifamily property you are interested
- Whether or not you would consider commercial properties
- What size of a down payment you will have available
- What type of ROI you are looking to achieve
- How long you intend to hold the property
Investment strategies should always include the bigger pictures and should contain all the factors regarding your personal investments.
Before you move into a new type of investment, whether that is a single family home, or multifamily properties, have a fully developed strategy.
4. Don’t Forget to Look at the Taxes
Depending on the area you are investing in, the taxes could be very high. They usually are based on the value of the property. But the manner in which it is assessed and the tax rate can vary from place to place.
You don’t want to invest in a property without taking the taxes into consideration – especially a multifamily property. These are going to likely be valued at a much higher amount than a single family home. That means the taxes are going to be greater. You need to be able to ensure you can cover the cost of the taxes annually or else you may find yourself in a bit of hot water. It is important to keep in mind that taxes don’t usually tend to drop, but may very well increase. So keep this in mind as you are considering scaling your portfolio.
5. Weigh Out the Cost vs. the Benefit
Finally, you want to be sure you perform your due diligence, carefully weighing out the cost vs. the benefit. Taking on a big investment such as a multifamily property can be a great undertaking as there is a lot involved. It can easily soak up your finances, too, if you are not careful.
There will be upgrades and repairs that need to be done. You want to create a property that will be enjoyed and sought after by renters, but you don’t necessarily want to get yourself in a position where you have invested too much in the building, as well as the repairs and upgrades, that you end up upside down in your investment.
Take time to review the financials. Pay attention to your interest rate. Assess your cash flow vs. appreciation. If it doesn’t appear that the multifamily property will lead you on a path to growth, then don’t move forward with it and continue searching for the right property.
Scaling Investments from a Single Family Home
There are so many steps that go into moving your focus from a single family home to multifamily buildings. But these five are important – you need to focus on the financials and growth opportunities of the property. Of course, though, it is also important to focus on things like having preparations in place, such as ideas for creating value and a property management team like Phoenix’s Real Property Management Evolve to make the outcome positive.
Are multifamily properties right for you? If so, contact our team at Real Property Management Evolve today.