The Step by Step Guide to Buying a Multifamily Home

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The Step by Step Guide to Buying a Multifamily Home

In 2017, 5.51 million homes were sold, making real estate a great investment.

Multifamily homes are part of real estate that are becoming a popular investment, and one that you should consider looking into.

Buying a multifamily home can be an amazing investment if you do your homework. Learn everything you can before you pull the trigger!

Research the Location

Before buying a multifamily home, you should really do research on the right location to buy a home.

Even if you don’t want to live in the neighborhood, you need to make sure that possible tenants want to. Start by finding some optimal neighborhoods and then start looking in those neighborhoods for multifamily homes for sale.

When considering different neighborhoods, you will want to think like a future tenant. Some things you will need to consider when choosing a location are things like:

  • Quality and distance of schools
  • Parking
  • Safety
  • The condition of property and neighboring properties
  • Proximity to stores and businesses
  • Nearby hospitals/emergency rooms
  • Traffic
  • Walking distances
  • Access to public transportation
  • Amenities

You most likely will do this research online, but once you think you have narrowed it down to a few neighborhoods, actually go out to that neighborhood.

Sometimes the internet doesn’t always provide accurate information, and you may want to see the area for yourself to make sure it would be a great place for tenants to live. Make sure that you go during the day and at night, also during the week and during the weekends.

Maybe the property is near a big, downtown city, and the area is actually really loud at night but quiet during the day. These are all things that you want to know.

Because this is an investment, you want to make sure that you are choosing the right property so that you will be able to get your money back eventually.

Find a Lender

Once you have narrowed down your options to find a potential neighborhood and property, the next step will be to find a lender.

You most likely don’t have all the money necessary to buy a multifamily home, so you will need to borrow the money from someone, especially if you are going to have to do some renovations on the property.

When estimating how much money you will need to invest, always make sure that you round up to ensure that you are covering all possible surprise costs that come with buying a property.

When you find a lender, you will need to find someone that specializes in multifamily loans.

When trying to find a lender, there are some things that you should consider:

  • State services are offered in
  • Customer service
  • Interest rates
  • Terms and conditions
  • Rehab loans

Rehab loans are important to consider if you are planning on doing renovations to your new property. Check to make sure that the lender you want to use offers them because not all of them do.

When applying, make sure that you have all your documents together and that you present a complete package. You want to make the process easy for you and the lender, and this may help them feel more comfortable lending money to you. You may even get a smaller discount because of it.

Once you apply and they accept your application, you will get a pre-approval letter which you have to have to even make an offer a multifamily property.

If you don’t have the money to get a multifamily home, you may want to consider going smaller, like a duplex. That is a great way to start out, especially if you haven’t invested in property before.

Find a Real Estate Agent

Once you have completed the last two steps, you will need to find a real estate agent to help you when buying a multifamily home.

You can do the last two steps alone, especially if this isn’t your first time investing in and buying property. However, if you’re new to the game, a real estate agent can really help you navigate the murky waters.

It’s their job to know the neighborhoods and the properties, so they can really offer you some tips and guidance on finding the right home. Not only are they available to help you make offers and find properties, but they can also schedule times where you can see the property and can help you make an offer on the home that you do finally choose.

Finding a real estate agent who is also an investor or specializes in multifamily homes can be really valuable in the process because they know exactly what you’re trying to do and know how to help you achieve that goal.

They also know what questions are the right ones to ask, which can be helpful if you’ve never done this before.

Multifamily homes can sometimes be difficult to schedule showings with because people normally live there. It’s not uncommon for some people to invest in the property without knowing what the inside looks like.

Find a Multifamily House

Once you think you’ve found the perfect multifamily home that you want to invest in, there are some specific things you should consider before making an offer on the house.

Condition

For example, what kind of condition is the property in? Is it in great condition? Or will you have to make a lot of renovations to make it appealing to future tenants. If it needs renovation, you may end up paying more money later on, so it’s important to sit down and weigh out the different costs.

Area Rent

Before closing on a house, you should also figure out what the rent in the area is. You want to make sure that you get some money back in the rent, and if what people are paying now or what their neighbors paying won’t provide you any money back, you should may consider looking at a different property.

If you charge too high of rent, no one is going to want to live in your neighborhood, but if the rent is too low, you may not make any money back. This is one of the most important things to consider before buying a property.

Codes

You should also check to make sure that the building is up to code. When more families live in a single property, this poses a bigger safety and fire hazard which could end up costing you money later on down the road. Make sure that they are all following the laws before you buy it.

Current Tenants

If possible, talk with the tenants that are already there. Ask them what it’s like to live there. Do they like living there? What don’t they like about it? How long have they lived there? Questions like that can help you decide if this would be a good fit for you.

While you’re talking to them though, don’t let them know that you are thinking about buying the property or even that the current owner is selling the property. If tenants find this out, they may be more inclined to move out.

Make an Offer

Once you have found the perfect property, then you will need to make an offer.

This is where the real estate agent can come in handy because they know how to negotiate the different prices and help you get the best deal. You will also need that pre-approval letter that you got from the lender.

Normally when you make an offer on a house, you will put a deposit down which will take the house off the market while your finances are double-checked.  If you were honest in your lending application and your finances don’t get approved, you should get your deposit back.

For multifamily houses, a deposit generally runs anywhere from 5 to 10% of what the property is listed as.

Close on the House

Once you’ve followed all of these steps and your offer gets approved, then you will make a close on your new property investment.

You need to get all your funding together, and then the lender will send you a financing commitment. This is normally better than the pre-approval letter because the lender has had more time to verify the information that you provided them with.

After you receive this, your lender should approve your loan which means that you are ready to close on the property.

You will schedule a closing appointment where all people involved can be present.  A closing appointment normally takes about an hour and is held during the weekday.

Make sure that you bring all the necessary documentation during closing so that the process goes smoothly. You and other people concerned will sign all the papers, and then you will get the keys to your new multifamily home.

Look into Buying a Multifamily Home Today

If you are looking for a good investment opportunity, you should look into buying a multifamily home.

It can be a lot of research and paperwork to get to the point where you can close on a home, but once you do all of that, this can be a rewarding project.