Everything You Need to Know About Investing in Multiunit Property

Investing in multiunit properties can bring greater diversity, profitability, and simplicity to your portfolio. With multiple units, and multiple renters, in one location, you will be able to earn a strong income from a single investments.

While similar to single-family homes, the process for investing in multiunit properties is slightly different. To do it right, you need the right information and the support of highly experienced professionals.

Investing in Multiunit Property: What You Need to Know Before You Buy

Why Invest in a Multiunit Property?

Investing in multiunit properties can bring a wide range of advantages. From available lending to the distribution of risk, multiunit properties bring many benefits that investors appreciate.

Multiple Units in One Transaction

The purchase and financing process, while relatively easy, can be complicated and time consuming. If buying single-family properties, you would need to go through the process four times to acquire four units. However, if purchasing a property with multiple units, you can add as many as four units (or more with special financing) in one transaction. One negotiation; one loan application; one closing: four units.

Risk of Vacancy/Income Loss is Spread Out

When you have multiple units on a single property, the risk of complete income loss is less. Suppose you own one single-family rental home. It’s being rented out to a newly-married couple, but after a year the young family decides it’s time to buy their own house, as they often do. When they move out, for whatever reason you can’t find a new tenant to occupy the home; it sits unoccupied for six months and does not bring an income. 100% of the potential income was lost.

Now imagine the same scenario, but instead of a single-family home you own a duplex, with a young couple in one unit and a retiree on the other. When the couple moves out, only 50% of the potential income from that property is lost.

Essentially, it places less importance on a single unit, bringing less risk if you can’t find a tenant, which is a reality all landlords have faced.

Chance to Purchase a Home and an Income Property

If you are a first time buyer and an aspiring investor, multiunit properties present an excellent opportunity. In one transaction, you can purchase a home for yourself and a property that can generate income.

While it can be useful for anyone, this strategy is extremely convenient for young investors who are looking to start an investment portfolio.

Multiple Loan Options Available

There are many loan options that allow you to purchase a multiunit property, including conventional loans and even some government-insured loans. The variety of loan options gives you a competitive choice.

One of the top loan options is using future rent as qualifying income. Using a fairly simple formula, lending agents can calculate rent totals for your would-be property, compare that to the mortgage, and make lending decisions based on these numbers. This is a good strategy for current investors who may have high debt loads already.

There are also many government-supported loans that can be used for investment properties. VA loans, for example, allow for the purchase of a property with as many as four units. The major issue, however, is that you have to occupy one of the properties for a certain period, usually about a year.

How to Invest in Multiunit Properties

The process for investing in multiunit properties is very similar to purchasing a personal property or a single-family residence. You need to organize your finances, meet with lending agents, and talk with real estate professionals. But there are a few differences.

The basics of purchasing an investment property remain the same. You should consider factors like location and potential income. You should consider resell value, area demand for rental units, and other factors that are fundamental to investment property.

To start the process, it’s probably best to start by talking with a lending agent. Discussions with someone who understands investment-property loans will help you be more informed on budget, monthly payments, and what price range of properties you can afford.

Talking with experienced professionals can help you make the right choice when investing in multiunit properties.

To find available multiunit properties, you can use a variety of sources, but talking with a real estate professional is a good first step. If you have used a real estate agent in the past (and you had a good experience) talk with this professional and let them know that you are considering a multiunit property. If they are unable to help you directly, they can certainly direct you to a trustworthy agent who can guide you to a good purchase.

Traditional listing sites can be used just as easily for multiunit properties as for anything else. Realtor.com, for example, has a filter that allows you to look at “multi-family homes.” (Search for your desired area, then near the top click on the “Property Type” and choose the “Multi Family Homes” filter.)

When searching for a multiunit property, it’s best to focus not so much on price (although that makes a difference), but on value and potential returns. Look for homes in mid-level neighborhoods, and try to find properties with a relatively low price-per-square-foot. This will help you find a good value investment that can be leveraged for a strong monthly profit. In general, start in the low portion of mid-range duplexes and multiplexes, but don’t go so low that you can’t find tenants or resell the property when the time comes. (Which it will!)

If you find a multiunit home, be sure to ask the seller why they are getting rid of the property, and ask for data on vacancy rates, income, and other factors. They don’t have to divulge the answer, but you may discover there was difficulty renting or they simply could not balance repair costs with the monthly payments.

Dedicated Support for Loans on Multiunit Investing

If you are ready to expand your investment portfolio, or if you simply want to learn more about loans for multiunit properties, contact our team today. With experience in mortgage underwriting and investment properties, we can help you find a fantastic loan for a duplex or multiunit property!



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I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online