Multifamily real estate investing forms the core of most rental property businesses. There are advantages to multifamily investing compared to other real estate options. So many, that business owners often make it their primary focus. If you are at Mashvisor checking out all the great tools and resources available to help you, you may have one big question in mind: “How much money do I need to get started in multifamily investing?” Let’s explore that question in detail with an eye towards how to get started in multifamily investing.
Starting in Multifamily Investing – One Huge Advantage
There is a simple reason that many real estate investors begin with multifamily investing. Simply put, you can obtain a low money down, low interest loan for a multifamily property. However, you must occupy one of the units. There is little downside. You need to live someplace. So why not reside in a building that’s an income-generating asset which pays you money each month instead of you paying a mortgage or rent?
The trick is to declare your multifamily investment as your primary residence and to obtain a Federal Housing Administration low interest, low money down loan. FHA loans, as they are called, have many advantages. Unlike the loans for investment properties in which you do not reside, they resemble loans that most homeowners use to buy a first home.
The best news is you don’t have to stay until the loan is paid off. You should verify the rules yourself. However, a one-year occupancy may be all that is needed to obtain a low interest, low money down loan.
Multifamily Investing – Your Budget
Like any business, multifamily investing requires a plan. You will need to carefully plan to cover your rental property expenses. Investing in multifamily properties isn’t difficult. Knowing where the hidden monthly costs are can be a big help though. Before you begin, start with a real estate investing plan and a budget.
Multifamily Investment Properties’ Taxes
Aside from your mortgage, one of the biggest expenses are the property taxes on your multifamily investment property. Property taxes vary by locality. Be sure that you check with the state, county, and city or town in which your investment property is located to get a full accounting. If you opted to obtain a low interest, low down payment FHA loan, your property taxes will be held for you in an escrow account by the bank issuing the mortgage.
You may also be surprised to learn that you will need to pay this property tax a few months in advance of its due date. Banks hold the funds for you and pay the taxes out of your account. Since property taxes on even small multifamily homes can be thousands of dollars, ensuring this is at the top of your monthly budget is a wise move.
Multifamily Investing – Repairs and Maintenance
When you explore the real estate market and consider the median price for multifamily homes in your given search area, consider repair costs. If the homes are relatively expensive, budget more for repairs than in areas where homes of the same size cost less.
Sadly, the cost of repairs and maintenance seem to follow the real estate market. Pricey neighborhoods have contractors who see bigger dollar signs when they provide estimates. Here’s a tip; If the town you are buying into abuts a more moderately priced neighborhood (or one that is downright affordable), look for your contractors there. They will likely be more investor-focused. Avoid artists who want to create estate-quality masterpieces. Find blue-collar contractors who get the job done on a budget.
Multifamily Property Insurance
The price you pay for multifamily insurance is not going to be as small for your rental property as it would be if you were comparing a private home’s insurance costs. Investing in multifamily homes is a formal business and business insurance on property is usually higher in price. Wise real estate investors also look closely at the liability section of their property insurance. If this amount is adjustable, consider increasing your coverage to a minimum of $1 million.
Since you purchased this home in your own name, and not under the protection of a limited liability corporation (LLC), you personally are liable in the event of a problem. Work closely with your insurance agent, and make certain that whoever you opt to work with also handles corporate insurance. You won’t stay a personal real estate investor forever and you may as well form a relationship with an insurer who can handle your future needs as well as your needs today.
Multifamily Property Management Fees and Costs
If you are handy and you reside in one of your units, you will have low management fees. In fact, you will likely opt not to have a professional property management company assist you when investing in multifamily homes. However, if you travel a lot, or if you have another business or activity that ties you up during the workday (who doesn’t!), a property management company is helpful. The services they provide can be very helpful when things go wrong and you are unavailable. Be sure to ask what they can do for you. Many can bundle in listing available rental properties and showing the units. Many will collect rent for you. Almost all have realtors on staff. Think of the property manager as a partner and you will find that they can be more than just another bill you pay.
Don’t Forget These Budget Busters
As you calculate your costs to determine how much money you need to start a multifamily investment business, don’t assume you know anything. Verify the water costs, sewer costs, and any other required utilities. Does your multifamily have meters for each unit? If not, you must include those services in the rent. Don’t be surprised by utility costs.
In many areas, realtors also charge a month’s rent for each unit they help you fill. Be sure you know the norms and what the costs associated with finding tenants and filling empty units entail.
As you work towards your own multifamily investment business, be sure to check out the many ways Mashvisor can help you.