Multi family investment properties seem to be one of the most discussed topics in the real estate market. It is a common assumption that such real estate properties cost a lot and are impossible to maintain properly. Yet, this is not always the case. If you manage your finances properly and take the right real estate investment decisions, multi family homes can turn to be a great opportunity for you as a real estate investor. The most important question in regards to multi family investment properties is how much to charge for rent. It is crucial, however, to know when to invest in multi family properties in order to understand how much to charge for rent and how to make money from your rental investment.
What to Know About Multi Family Investment Properties?
It is important to note that when real estate investors deal with multi family properties, it is not always the case that they invest in the whole property. There are many housing units in one multi family house. This offers the opportunity to invest in multi family houses at a lower cost by putting money in just a few housing units instead of the whole property. This type of investment properties offer some benefits to real estate investor due to the fact that the price per housing unit is lower than the one of a single family property, for example. Thus, the rental income tends to be lower as well. However, investing in such type of real estate property has other pluses. For instance, it hides fewer risks for real estate investors. Let’s imagine that a real estate investor holds a couple of housing units in a multi family property. If one housing unit is vacant, the costs for the real estate investor are much lower than they would be for an unoccupied single family property.
Related: When Are Multi Family Homes for Rent the Best Investment Property?
When Is It a Good Idea to Invest in Multi Family Properties?
A useful tool when making this decision is the investment property calculator. It is used as an indicator of whether or not a real estate property is a good investment opportunity. This real estate investing tool calculates the predictive outcome through pre-entered cost assumptions. The investment property calculator is extremely useful when it comes to the decision of putting money in multi family properties. The reason behind this is the fact that the calculator saves a lot of time and provides a real estate investor with relatively precise results. This is very important as investing in multi family properties usually involves the investment in more than one housing unit. Therefore, it requires longer time and higher start-up costs.
Related: An Investment Property Calculator is a Must. Read Here Why
What Is Your Rental Strategy?
Your rental strategy is an important factor for determining how much to charge for rent. There are two main types of real estate markets in which you can offer a housing unit of a multi family property. These are, specifically, traditional real estate investing vs. Airbnb investing. Both traditional rentals and Airbnb rentals have their pros and cons.
Traditional rentals, for instance, are more secure. This is due to the fact that the landlord can perform background checks on the tenants and get to know them before renting out the real estate property. Additionally, in this situation, contracts for rent are signed for a long period of time. Commonly, the tenants need to notify the landlord a specific amount of time before moving out of the rental property. In this way the real estate investor has time to react and find new occupants of the housing unit, so it does not stay vacant. This is not necessarily the case with Airbnb rentals. Furthermore, traditional rentals have less legal issues and less taxes. Of course, the landlord pays taxes on his/her rental income, but these are far away from the taxes Airbnb rentals have.
Airbnb rental properties, on the other hand, are more likely to generate higher profit. Real estate investors can ask for a higher price per night because the property is treated as a vacation spot. Airbnb rentals are also more flexible. Thus, a real estate investor can list them for certain periods and not give them for rent for others. Even though this type of rental property provides higher rental income, it is also more time-consuming. It needs to be cleaned after each guest. Consequently, it has more expenses compared to traditional rentals.
Generally speaking, with Mashvisor’s help you can decide if it is better to put your rental property on the traditional real estate market or on the Airbnb market.
How Much to Charge for Rent on the Real Estate Traditional Market?
How much to charge for rent for a housing unit of a multi family investment property depends on several factors. Most of them are the standard things a real estate investor should consider before deciding how much to charge for rent. Such a factor is the property price as the rent usually varies between 0.8% and 1.1% of the market value of the rental property. Another variable concerning the rent is the average asking price in the area. Do not forget to also consider the rents of other housing units of the multi family home. In addition, what the type of the market is, i.e., you need to evaluate the demand and supply. As real estate investors are usually willing to hold more housing units in a multi family property, the start-up costs are high. Surely, not all landlords are able to afford investing in rental properties with their own assets. That is why real estate investors take mortgage loans in order to facilitate their business. The mortgage should also be calculated prior to deciding how much to charge for rent.
Related: Is Taking a Mortgage for Rental Property a Good Idea?
How Much to Charge for Rent on the Airbnb Market?
When deciding how much to charge for rent for your Airbnb rentals, you as a real estate investor need to think of several things. First, calculate all the costs realted to the real estate investment property. Such costs include the fees and taxes that need to be paid. Additional costs are the expenses for cleaning, maintenance, etc. Also, the real estate investor needs to compare the prices of hotels in the area and, most importantly, other Airbnb rentals. It is advisable to set the asking price for your rental property lower than the average price of hotels. Consider the market – what the demand for vacations places is and what the supply is. If your Airbnb rentals are in an area that is only seasonally occupied, change the asking price corresponding to the season. Further, if you are new on the Airbnb market, a good strategy is pricing your property lower until it gets reviews and ratings and gains popularity. When it comes to Airbnb rentals, the real estate question is: “How much to charge for rent at this very moment?”
How much to charge for rent is an important decision, so do not forget the steps you need to take before in order to ensure a successful business in the field of real estate investing.