How to Make Sure Your Multifamily is Profitable

How to Make Sure Your Multifamily is Profitable

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.

Expect Vacancies

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.