If you're looking to invest in real estate, but aren't sure where to start, the option of purchasing a multifamily home might be the perfect alternative. A multifamily home is a property that is divided into smaller units, generally ranging from two to four units, that are rented out to varying degrees of residents.
Investing in a multifamily home is similar to purchasing a single-family property in many ways. You'll still need to perform credit checks and run background checks on prospective tenants. You'll also need to make sure that you're purchasing a property that is zoned for residential use and that has all necessary licenses and permits approved before beginning construction. However, because a multifamily home can house more people, you might find that the process of buying one can be slightly different.
If you're looking to invest in real estate and don't want to overwhelm yourself – or your limited real estate investing resources – with the task of buying a single-family home, consider investing in a multifamily property instead. Here's a step-by-step guide for buying a multifamily home for the first time so that you can get the most out of your new investment and meet the demands of your new demanding lifestyle.
Step #1: Find The Right Location
Just like with most other real estate purchases, your first step in finding the right location for a multifamily home is by searching online databases, such as Zillow and Redfin, that track housing data and information. These databases can help you find properties that are both affordable and in desirable locations, which is vital for your financial security and the comfort of your new lifestyle. You don't want to invest in a property that is either too expensive or in an undesirable location, as you'll probably end up abandoning it eventually anyway, due to low rental returns or because it is too far away from your preferred locations for everyday shopping, dining, or entertainment.
In order to find the right location for your multifamily home, it is essential that you are searching a truly national database, as some smaller, local properties might not be listed due to the lack of coverage of smaller properties in these databases. By searching these databases, you will have access to a wide range of properties, including both traditional single-family homes and high-rise multifamilies that might otherwise be out of your reach, due to minimum property size restrictions. Having this range makes it easier to find the right property for your needs, as you'll be able to determine its relative merits, rather than having to visit multiple properties in person, to make an informed decision.
Step #2: Set A Budget And A Time Frame
When it comes to real estate purchases, setting a budget is essential. Just like with most other purchases, the more you spend on a property, the more you'll get back in terms of financial return and quality of life. Similarly, setting a time frame is also vital, especially when investing in a new home. You don't want to buy a property that you can't comfortably occupy for the duration of its' usefully lifespan, as this will simply be another investment that you'll have to abandon, once your lease expires. Unless you have impeccable timing abilities, it is best to set a deadline, so that you can make sure that you'll be able to move in by the given date. You don't want to buy a property that you will not be able to move into, as this will simply be another unpleasant experience, that you don't need in your life.
Step #3: Do Your Research
Once you've located the right property, it's time to do your research. Just as with most other types of purchases, proper research is vital, as it will help you make the right decision, based on your needs and the needs of your family. One of the most important things to do, before you commit to a purchase, is to look into the property's history. As we mentioned above, proper research into the history of a property will help you decide, if this is the right location for your needs. You don't want to purchase a property, that has a bad history of previous owners or of having been in bad conditions, as it could be a sign that there is ongoing maintenance work required or that there have been numerous past accidents or incidents, that could be harmful or hazardous. Check out the local news stories, as well as any previous newspaper articles, regarding the property's history, so that you can have a clear picture of what's going on in the world of real estate before you make your decision.
Step #4: Obtain All Necessary Permits
Just like with most other types of purchases, the more you know about the permitting process, the easier it will be to navigate, rather than getting bogged down in legal battles, once the construction is complete. This is one area, where having some prior experience can really be beneficial, rather than having to rely on outside help, as you would with a real estate attorney. It is also important to make sure that you are obtaining all of the necessary permits, before beginning construction. This means that you'll need to secure a building permit from your city or county government, in addition to the ones required by the state and/or country, in which the property is located. Make sure to get the paperwork related to these permits, in order, so that you can easily keep track of what's needed for the property's construction, rather than having to ask multiple questions, related to different permits, at different times, during the construction process.
Step #5: Get Pre-Qualified For A Mortgage
If you're looking to purchase a home with cash, it's best to get pre-qualified for a mortgage, before you make the final decision. Just like with most other types of purchases, the more you know about the mortgage process, the more you'll be able to understand and control it, rather than being at the mercy of a bank or a real estate agent, when it comes to obtaining mortgage financing. Having a clear picture of what the mortgage process is and how it works, will also give you the confidence to ask any necessary questions, regarding the details of the loan, during the mortgage application process.
Step #6: Customize Your To-Do List
Having a to-do list, that is both realistic and achievable, will give you the confidence to complete the tasks, required to buy the property. For most people, having a realistic to-do list, that is closely aligned with the actual steps, required to purchase a property, will give them the confidence to follow through, on what seems like a daunting task. Checking items off of your to-do list, will give you a sense of accomplishment, rather than feeling overwhelmed or frustrated, due to the complexity of the task at hand.
Step #7: Choose A Real Estate Agent
Like with most other types of purchases, having an experienced real estate agent, by your side, through the entire process, will greatly improve both your enjoyment and your chances of completing a successful real estate transaction. A real estate agent will be able to answer any questions that you might have, regarding the buying process, provide guidance and advice, as you make your decision, negotiate on your behalf, and perform various closing tasks, once the transaction is complete.
Step #8: Choose A Construction Company
Once you've decided that this is the right location for your needs and have found a suitable property, it's time to choose a construction company. Just like with most other types of purchases, there are countless companies out there, that provide skilled labor for home construction, so you'll need to do some research, before making your decision. One crucial factor, to consider, is the reputation of the company. As we mentioned above, proper research into the history of a property is important, so that you can get a clear picture of what to expect, in terms of both qualities of work and customer service. Reputation is also important, so be sure to choose a company, that has a good reputation, regarding both quality of work and customer service, rather than choosing a company, purely based on price, which might end up being a bad choice, in the long run.