6 Tips by Neil Shekhter on How to Invest in Multifamily Property

LOS ANGELES, CA / ACCESSWIRE / January 29, 2018 / Real estate investors who’ve already dipped their feet in purchasing and renting out single-family properties may be looking for that next financial level of investment. New investors, likewise, may be looking toward larger investment opportunities. Either way, investing in a multi-family property can fit the bill. Multi-family properties are more challenging, but they also yield a higher income potential and allow you to build your net income faster.

Is a Multi-Family Property Investment The Right Move?

Wondering if multi-family properties are the right portal for your investment dollars? As a real estate investor, landlord to multiple properties, and founder of NMS Properties, Neil Shekhter has some excellent advice for investors – you’re ready to buy a multi-family property “when you’re excited about the idea.”

Shekhter also points out that multi-family properties aren’t necessarily a progressive investment step. There are investors who’ve bought multi-family properties as their first investment. And, there are investors who’ve stuck with single-family properties through hundreds of investment purchases. It boils down to what the investor is interested in, comfortable with, and capable of as a property owner.

Perform Due Diligence

If a multi-family property investment interests you, then you’ll need to ensure you’re prepared for that level of responsibility, financial commitment, and liability. You’ll also need to factor in that your finances must go beyond purchasing power; you’ll need capital reserves to handle emergencies and periods of under performance. Here are 7 tips to invest in multifamily property:

Tip One: Live in one of the units.

Mark Ferguson, a real estate agent, investor, and creator of InvestFourMore, suggests investors take advantage of owner-occupied financing. This special financing option helps investors avoid the typical 20% down payment that most lenders require upfront. It also keeps your debt-to-income ratio lower so that you retain the buying power to make investments elsewhere as they arise. Owner-occupied financing is a low down payment option available for properties with less than five units. The buyer must plan to live in one of the units.

Tip Two: Utilize professional, expert services.

There’s a tremendous amount of legal, financial, and real estate jargon to sift through when you buy any property, especially large properties like multi-family dwellings that have all sorts of extra considerations.

Shekhter recommends using a multi-discipline team of experts, including a lender, broker, and an attorney specializing in real estate. These experts can help you understand both the broad rules and any specific practices and caveats that may apply locally.

Speaking of local… instead of a general inspector, you may want to seek out local trade consultations for each of the various aspects of physically inspecting the building. You can also do a meet and greet with tenets, which gives you the perfect opportunity to get their perspective on the condition of the building and learn any unresolved issues they might have.

Your expert team of advisors can help you collect and analyze the paperwork details you’ll want to have for due diligence, including current and past income and expense statements, service contracts, lease agreements, proof of rental payments, and renter roll-call, so that you can determine if the performance history matches your projected operations and business plan. Don’t forget to have a written agreement that transfers security deposits to you.

It’s also prudent to check the neighborhood for potential drawbacks that may impact the property’s vacancy rate and performance.

One often overlooked legal aspect is in investors purchasing a property only to find out it’s not zoned as multi-family or for the number of units available. This can even be the case when a current owner is using it as such; the owner could have grandfathered privileges that do not transfer to new owners.

Tip Three: Understand how the property is valued.

Multi-family properties are not valued at a price per square foot like a traditional home would be valued. Valuation is based on rate of return and generated income. You’ll need to look at the operating income history of building, which is the difference between the building’s expenses and income. The operating income is then divided by the capitalization rate, or typical rate of return for the area. The result is the fair market value of the property.

Tip Four: Keep enough cash reserve to remain operational during difficult times.

Shekhter also recommends that multi-family property owners never assume that a property will be rented to max capacity at all times. You also can’t assume that all renters will pay or pay in a timely manner. Then, there are also all the unexpected and emergency events that can occur at any time, such as water damage that’ll cause both costly repairs and rent absence.

Your cash reserve should be large enough to carry you through difficult times. Most experts recommend multi-family property owners take at least 10% from their monthly rental income to prepare for emergencies, vacancies, and periods of market decline.

Tip Five: Know your local landlord/ renter rights and responsibilities.

You’ll want to familiarize yourself with renters’ rights and responsibilities and your own. Again, this is where your expert property lawyer is invaluable. You should, for example, know what details should be included in your lease agreements. Perhaps you have a renter who doesn’t pay or is a menace to other renters. Do you know what it takes in your state and local jurisdiction to evict a tenet?

Tip Six: Determine the caliber of multi-family property you’re willing to devote your time, energy, and money toward.

Being a rental property owner is far from as simple as buying the property and sitting back to collect the rental income.

Rental properties have different factors that make them less -to- more work, such as the quality of the neighborhood and the age of the property. In fact, such factors are used to officially classify rental properties as A through D, with D being the worst condition and most work to own.

Neil Shekhter explained, that the D-classified properties are usually in the worst neighborhoods, have a high renter turnover, suffer a lot of damages, and frequently house renters with unpredictable payment abilities. You can see how those factors cause a lot of headaches and time and financial commitments to maintain the property. A-classified properties are generally in affluent neighborhoods with reliable, responsible renters, but they also cost a significant amount more to purchase.

You should determine the caliber of property your investment budget will afford and carefully ponder if you’re willing to put the time, energy, liability risk, and finances into the property type you can afford. The next tip may offer a solution to those with the finances, but not the time.

With these 6 Tips to Invest in Multifamily Property , you can go through the due diligence process to determine the best investment route for your dollar. Multi-family properties have a great earning potential if you plan wisely before and after your purchase.

Launching NMS Properties in 1988, Neil Shekhter assumed the role of CEO in January 1995. The real estate management company focuses on multi-family and mixed-use properties in the Greater Los Angeles area and in Santa Monica. At present, NMS properties manages more than 70 properties.

Neil Shekhter – Founder and CEO of NMS Properties
Apartments For Rent in Los Angeles http://www.nmsresidential.com/
Apartments For Rent in Santa Monica http://www.nmsresidential.com/nms-1539-santa-monica-ca/
NMS Properties – Real Estate Management Firm: http://www.nmsproperties.com

Contact Information:

news@neilshekhter.com
info@neil-shekhter.com

SOURCE: NMS Properties

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