One of the easiest ways to get started in real estate investing is with a multifamily home. It is just as easy to qualify for financing on a duplex or triplex as it is a single family home. Yes you will have bigger payments but the rental income can offset your expenses and make living in your home very inexpensive. Your tenants can take care of the mortgage while you use your money for other real estate investments. But before you make an offer to purchase you need to know how to make sure your multifamily is profitable, here is what you need to look for.
Is it Ready to be Rented
Are all of the units in good enough condition to be rented out as soon as you take possession of the house or do they need work? Is the neighborhood a desirable one where you won’t have a problem finding good tenants? You also need to be comfortable with the idea of sharing your house with tenants. If you want a house for privacy then a multifamily may not be for you. You also need to crunch the numbers for cash flow and figure out how long you can carry the mortgage without a tenant.
Set aside some emergency money for times when you are between tenants. Even in the best of neighborhoods there may be gaps in between occupants, you may need the time to get the unit ready for the next tenants. Plan on your units being 75-80% occupied for the year, if it is more than that then great. You need to underestimate your rental income.
Calculate the Total Costs
There are additional expenses aside from your mortgage you will also have to pay property taxes, the utilities, and there will be maintenance costs. You need to set aside a reserve fun for big expenses like plumbing, hvac or roofing problems. Get an inspection before you make an offer and that will tell you exactly what needs to be done to the property. If there are too many issues you may want to pass on the deal. This will also help you understand what maintenance costs to expect in the future.
A multifamily property is a great way to dip your toe in the water when it comes to real estate investing. It will give you some experience in what it takes to become a landlord and how to manage property on a small scale.
Most real estate investors present offers directly to the seller or seller’s agent rather than going through an agent. If you are new to the world of real estate investing you may not be quite sure how to put in an offer. Putting in an offer on an investment property requires confidence and more importantly you need to understand the maximum price you are willing to pay for a property.
Here are some things you will need to consider:
- The value of the property once it is repaired
- Your cost to repair the property
- The carrying costs while you upgrade the property
All of these will factor into your decision on what to offer and what you are willing to pay for any particular property.
Once you have established your maximum price for the property, never go above that. When you enter into a negotiation process there are a couple of things you need to keep in mind. This is a business and you need to keep the emotion out of it. That means the seller’s situation is none of your business.
That being said listening to the seller is important, ultimately you’re working together to try and put together a deal that works for both of you. However, their situation should never impact your offer. Your offer should only be based on the numbers you have already worked out and the most you are willing to pay for the property.
The Seller’s Position
As an investor there are going to be times where your offer won’t be enough to cover the debts that the seller owes on the property. Don’t be surprised when they accept your offer anyway. Many can’t afford the burden of homeownership or the costs needed to cover the repairs that are necessary. They simply want out of the current situation and to move on.
New investors are often hesitant to make an offer because of the seller’s position. Don’t make assumptions on what they need or what they would be willing to sell for. Your offers need to be based on financial decisions that work for you. Flipping houses is a business and while you may want to help the seller as much as you can you need to keep your emotions out of the situation. If you or the seller aren’t happy with the deal you both have the option of walking away from the transaction.
The whole purpose of flipping a house is to make a profit, but sometimes you get carried away with the renovations and spend more than you need to. Making a profit on a flip is finding a balance between what a house needs versus what you would like to do to it. You need to know which renovations will make you money and which are just vanity projects. Let’s have a look at what to do with your flip.
Start with Necessary Repairs
If you know what needs to be fixed in your house then start with that. Fix broken windows, bad plumbing or faulty electrical and you should start with the big projects first. All of this should have come up in the home inspection so you know exactly what needs to be repaired right now. Don’t forget things like rain gutters and the basement along with holes in the wall.
Kitchens are what sell houses it is also where flippers overspend. Do the cabinets need to be ripped out or can you refinish them to make them look good. You may be better off refinishing the cabinets and spending money on a granite countertop instead. Look at the things that make money such granite counter tops or a kitchen island.
After the kitchen you want to focus your attention on the bathroom, it’s also something a buyer will look at very closely. Again you can resurface or paint any existing cabinets. You can install new fixtures like shower curtains and shelves. You may not need to rip out the bathtub and replace it you may just need to spruce things up a bit in there.
Don’t Forget the Curb Appeal
Don’t spend your entire budget on the inside of the house when the landscaping needs attention too. This is the first thing buyers see when they come to check out your home so invest the money in making it look good. Get the trees and bushes trimmed, mow the grass and consider investing in a brand new steel door. New doors provide a great ROI, they look good and make buyers feel safe in your home.
No matter how much work you did to make this house look good you still have to make buyers feel like this could be their home and you do that through staging. Clean it from top to bottom! Stick with neutral colors and standard pieces of furniture. An old realtor’s trick is to bake cookies on the day of an open house to make the place smell delicious and feel homier. Staging is more important than most sellers give it credit, it can mean better offers by more people.
If you want to make a profit flipping houses then you need to learn where to spend money and not overspend.
Flipping houses has become incredibly popular there is half a dozen or more reality programs geared around house flipping and these shows have huge audiences. It can be a very lucrative business opportunity if it is done right. You basically take an old rundown house, renovate it and sell it at a substantial profit. But if you want to make your house flipping business profitable then there are some people you want to connect with early. Here are three contacts every house flipper needs to know.
A Good Contractor
A good contractor is worth their weight in gold, not only will they be the ones who can fix your flip but your contractor can also tell you whether or not the building is sound. The contractor can help you decide which renovations will make you money and which are vanity projects. You need a good contractor who not only works at a fair price but works quickly, carrying costs add up quickly.
A Good Real Estate Agent
While you can sell your house yourself having a good relationship with a real estate agent is definitely in your best interest. Not only can they take the burden of selling the house off your hands but they have great connections when you are looking for your next flip. You need to find someone that you can trust, if you’re going to be flipping several houses a year that can mean a significant commission for them. Find a realtor who will help you grow your business and their own at the same time.
A Good Interior Designer
There are a couple of reasons that you want a good interior designer in your contact list. Flipping a basic three bedroom bungalow is fairly easy but if you want to get into flipping high end homes then an interior designer is your best friend. They can help you find the features that buyers want in a house. When it comes time to stage your home for an open house they can help you appeal to the widest variety of buyers. You want someone that you feel comfortable with and their tastes align with yours when it comes to design.
House flipping is highly lucrative but only if you have the right people around you. These are some of the most important contacts that can help you make money when it comes to flipping for profit.