So you have decided to invest in a multiunit property. It’s an excellent investment with the potential for great returns if done correctly. It already has at least one advantage above single units—primarily that you only need one property manager instead of multiple. You have picked an option that is much easier to manage because any grounds keeping, tenant issues, or rent collection is done all in one place. There are already so many advantages to a multi-unit property, but here are a few ways to invest in your property in order to optimize your returns:
Location is the primary indicator for what kind of tenants you will attract. There are a couple of ways you can approach this. The safe option is to buy a multi-unit that is already in a desirable area; the ideal location has low crime rates, schools, jobs, and local culture. Keep in mind that if you are investing in a wealthier area, the property will be costly. Tenants will also expect more out of the facilities and of management. You may want to consult with a financial advisor on how much, if any, returns you will get in a set amount of time.
Alternatively, you can also invest in a “poorer” area. Poor does not mean most people are in poverty, but it may not have ideal crime rates, cleanliness, or schools. However, as a neighboring city gets more and more expensive to rent, college grads and starting families will spread to the perimeters of the city to find a lower cost of living. A great example? New York City. Manhattan has always been the hotspot for people looking to live in New York. Unfortunately, sky-high rents drove many young people hoping to make it big to the suburbs, particularly Brooklyn. Brooklyn quickly gentrified, so now those investors who bought multi-units at a low price are making high profits off of tenants because demand for property is so high. Similar stories can be heard in cities like Chicago, Atlanta, San Diego, and the new up-and-comer—Detroit. It is wise to make a risk assessment. If this is not something you are comfortable doing, speak to a financial advisor to determine whether you can afford pricier neighborhoods.
In a competitive market, decisions come down to the little things. Draw tenants in by providing high-quality amenities. What can your building have that other buildings don’t? For example, washing machines can be an enticing attraction. Of course, the possibility of this depends on the size of the building. For example, in San Diego, beach-side complexes are being renovated to include on-site washers and dryers. It is also becoming more commonplace for larger multiunit structures to include in-unit washers and dryers (in limited space, stackable washers and dryers are most popular). Of course, not every city can meet this demand. Cramped spaces such as New York City have a more difficult time making this available, so other amenities should be considered to make the property more appealing. Simply updating certain features can make a big impact. Solid white cabinets and neutral countertops are very popular and make the space more open.
Thoroughly Investigate Candidates
You will want to choose responsible tenants after you put much of your time and money into the complex. Screening potential candidates by setting standards is an important part of the process. Run a renter’s credit check to determine whether the renter is prepared to make the rent on time and in full by way of credit score. You should also determine whether their income is high enough to make payment. If you are investing in an area with potential for growth, it may be wise to not start out with an astronomically high rent. In general, it is considered that income should be 2.5 or 3 times higher than the rent.
As you embark on your investment venture, keep these considerations in mind and make a solid, lucrative choice.