Build your nest egg and net worth by investing in a multi-unit building. Unless you are a commercial investor, most folks buy residential multi-unit buildings. A multi-unit building is more than one family residing in the same building and can be a duplex or a 10 unit complex. Before you buy, there are some important points to consider.
- Check the area where the multi-unit building is located. Check the type of street it’s on for excessively heavy traffic, noise, and the condition of other buildings on the street. Drive through the neighborhood to get a feel for the type of renters that are most likely to become your tenants. Drive through the streets at night to check for gang activity, criminal activity or anything else you’d want to avoid. Check with the local police to find out the crime rate in the area, and the number of police calls to the address you are going to buy.
- Research the neighborhood for other multi-unit buildings. Look for “vacancy” signs or “for rent” signs. Write down the phone number of the contact and call to get an idea of what the units are renting for. Check the classified section of your local newspaper to check for rental rates in the area. Rents must be high enough to not only pay for all expenses, but to give you a profit as well.
- Inspect the property thoroughly, especially the “bones” of the building. A certified building inspector will check the roof, foundation, plumbing and electrical systems. You should also check insulation, ceilings, floors and exterior conditions. A thorough inspection must be made to avoid expensive repairs. Check for adequate parking areas, smoke detectors and fire extinguishers. Make a note of each unit’s size, and if each unit is responsible for their own utilities.
- Study the numbers the seller has given you. Most sellers use the Income Method to show profit and loss. Remember to include the costs of taxes, insurance, repairs, maintenance, utilities and emergency repair funds with the cost of the mortgage. Remember that you’ll be getting a new mortgage, so you must not use the seller’s mortgage amount. An emergency fund will help during times of bad weather, vacant units or broken sewer lines.
- Do the math at least two or three times. Be slightly pessimistic when determining occupancy rates. For example, if you buy a ten unit building and eight of them are now occupied, do the math using numbers with only six units occupied. You’ll know by those numbers if you can get through really tough times. If the building you’re buying is in good shape and in a good rental area, chances are you’ll have full occupancy most of the year.