Owning multi-family rental properties can be a great way to diversify an investment portfolio. It also makes a great strategy when you’re starting out as an investor or looking for a low-risk way to get involved in real estate.
Investors will often choose to buy multi-family homes specifically because it’s a great way to earn more rental income and quickly grow the value of an investment portfolio faster.
Let’s take a look at the benefits to buying multi-family rental properties in Pocatello and Idaho Falls, and what you should expect when it comes to leasing, managing, and maintaining them.
Less Vacancy Leads to Consistent Rental Income
Cash flow comes a lot easier when you’re renting out multi-family properties. And that’s largely because you have less fear of vacancy. When you are renting out one single home, a vacancy can be a difficult period. Your vacant home isn’t earning you any rental income, and you still have to pay for things like utilities, landscaping, and pest treatments. You have to keep it clean and invest resources in its marketing. This is stressful when you only have a single source of income.
Renting out a multi-family property provides multiple points of rent collection. You might have a vacant unit from time to time – it’s something every owner has to anticipate. However, you’ll be in a much stronger financial position. Absorbing that loss of rent is easier when you still have other properties bringing in rental income.
Fewer Per-Unit Maintenance Expenses
Maintenance costs are expensive and necessary, and it’s always advantageous to make your repairs and inspections as cost-effective as possible. It’s easier to do that when you’re renting out multiple units in a building instead of a single-family home.
Here’s an example of preventative maintenance being cheaper on a per-unit basis with multi-family investments: When you’re scheduling HVAC inspections or water heater flushes, you can schedule them all at one time. This will cost less when you have multiple units. You get one bill and a lot of items checked off your maintenance list. Landscaping, exterior maintenance, roofing, and other maintenance expenses are easily consolidated when you own multi-family property. Even your property management fees will be more cost-effective thanks to the volume pricing that most companies will provide.
Financing Multi-Family Properties is Often Easier
Locating a good loan for multi-family real estate and getting approved for that money is actually easier than when you’re trying to get financed for a single-family home. You might pay more for the loan, and there may be some additional documentation that’s needed during the process. But, if you’re patient, willing to shop around, and working with a great lender, you can find one loan to cover multiple units, which, if you do the math, is cheaper in the long run.
Why does multi-family lending make sense? Because the property has the potential to make money.
Lenders know this, and they’ll consider more than just your financial situation and credit. Because multi-family properties generate a strong and steady cash flow, many lenders will consider this to be a lower-risk investment.
Growing Your Portfolio of Rental Properties
It’s much easier to scale your portfolio for success when you’re adding multi-family properties instead of single-family homes. If your current portfolio involves six investment homes and you buy a building with six units, you’ve effectively doubled the size and strength and value of your portfolio in an instant.
The entire process will move faster. When you buy that building, you don’t have to go through six different real estate appraisals. You don’t have to negotiate with six different sellers. You’re not getting six separate loans.
Multi-family investing is simply more efficient.
When you invest in one or more multi-family properties, you are saving yourself a lot of time, energy, and money. You’re accessing a larger, significant, and impressive real estate portfolio that has the potential to earn impressive money in the short term and the long term.
Appreciation Potential with Multi-family Units
Appreciation will largely depend on you. When you keep your multi-family investment property well-maintained and occupied with responsible tenants, you can expect some great appreciation as the years march on. You can continue to raise your rental rates year after year.
To earn more on your multi-family investment in the long term, make sure you’re investing in upgrades and improvements. Consider in-unit laundry if you don’t offer it already. Add security cameras to the building. Set up a comfortable communal space so tenants will enjoy meeting and socializing with neighbors.
With your building, updates to the exterior will only need to be done every few years. Keep an eye on the condition of the paint, doors, windows, walkways, parking areas, and outdoor space.
Maintaining your property to a high standard of aesthetics and function will ensure a strong cash flow. Your multi-family property will also have greater potential to appreciate over time. This means you can expect increased equity when you decide it’s time to sell.
What Do You Need to Know about Multi-Family Investments?
There are a few key unique things that go along with managing multi-family properties that you’ll need to be prepared for.
- Decide How to Handle Utilities in Multi-family Units
Utilities with multi-family homes work a bit differently than they do with single-family investments.
You have a few options, but once you decide on how to handle the utilities, you want to be consistent and clear in the way you communicate your policies with tenants. Make sure your lease agreement is specific about what you expect tenants to do.
- You may want to have each tenant set up their own electric and other utility accounts.
- Or, you may want to cover the bills for the entire building and then bill the costs back to tenants based on usage.
- Yet another option is to charge a flat fee for water, electricity, gas, sewer, and trash removal. The best course of action will depend on the property itself and the number of tenants you have. This is another part of the planning process that should be decided before you buy.
The best decision will depend on your building, the number of tenants you are renting to, and your own tolerance for tracking and billing the utilities based on usage.
- Tenant Relations and Disputes
Multi-family rental property owners are required to deal with tenant conflicts and disputes in a way that’s a bit more urgent than those owners who have single-family homes only. You’ve got neighbors sharing walls and communal spaces when you rent out multifamily units. There are going to be complaints about parking, cleanliness, pets, and trash. Include some consistent standards and expectations in your lease agreement and if you’re buying an occupied multi-family building, make sure you get a sense of how the residents get along with each other.
Are You Ready to Invest in Your Multi-Family Rentals?
If we have successfully shown you the value in multi-family rental properties and why it’s best to add them to your investment portfolio, let’s talk about how to go about finding the right investment property for you.
Let’s assume you’re buying a building that already has tenants in place. That’s fantastic. When you’re negotiating the deal to acquire this multi-family property, make sure you’re doing your adequate due diligence. Ask the seller or their agent for detailed paperwork that includes income and expense statements for the current and previous years, current rent rolls, service contracts, and all existing lease agreements.
You want to make sure the property has been performing in a way that meets your investment goals.
Get to know the neighborhood as well. You’ll need to consider vacancy rates and turnover numbers. Inspect the building’s condition and evaluate rent payments for timeliness and delinquency.
When you’re buying, remember that multi-family properties are not valued by their price per square foot. The important metric is the income and return on investment that the building and each individual unit generates. Look at the anticipated net operating income and cash on cash return.
Working with Property Managers in Idaho Falls and Pocatello
You don’t invest in multi-family rental properties because you’re eager to manage them.
You invest in multi-family properties so you can earn money and diversify your investment portfolio. To be successful, you’ll want to have exceptional property management lined up even before you buy. A good property manager will help you make the right investment decision. You’ll have access to data that shows you rental values, comparative market analysis, and rental trends in the micro-market you plan to buy in. Your property manager can help you budget for maintenance and vacancy costs. You’ll know that the tenants who are placed will be well-screened and responsible.
Look for a property management company that’s experienced in multi-family housing and increasing the performance of these types of investments. Look for a company like ours. We’ve been helping investors identify great multi-family investments for years. We’re also experts at leasing, managing, and maintaining multi-family homes.
Contact our team at Jacob Grant Property Management.