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Scaling Up: Transitioning from Single-Family to Multi-Family Rentals

Man’s hand placing a coin with a tree. Concept of scaling up rental property investing.Investing in multifamily rental properties as opposed to single-family rental properties can help expand a portfolio and introduce new financial opportunities. It’s necessary to first understand the potential difficulties that come with renting out multiple-family homes. Purchasing a multifamily property is typically a more complicated and expensive endeavor than purchasing a single-family rental home. The move to your new investing plan can be effective, though, if you master the fundamentals of multifamily real estate investing.

Choose a Property Type

There are two main classes for multi-family rental properties, which is maybe the first thing to know. Residential properties are multifamily structures with four or fewer units, while properties with more than four units are typically commercial properties. In many ways, how you look for, evaluate, and price the multi-family property you wish to buy will depend on its size. For instance, purchasing single-family homes is equivalent to financing multi-family properties with four or fewer units using residential mortgages. On the other hand, commercial property is bought using commercial financing and is valued using a formula rather than on similar properties. Most rental property owners initially pick smaller multi-family properties because purchasing a commercial property may be fairly difficult for someone who hasn’t gone through the procedure previously.

More Units = More Preparation

Even if you decide to purchase a four-unit or smaller multi-family property, there will be more planning required than when purchasing single-family rentals. For instance, a lucrative rental always depends on location. Location can be crucial for multi-family buildings, especially if it’s close to amenities like public transportation. Additionally, it is essential to evaluate the area’s cost of living, crime rate, and average income. Although researching figures online can be useful, they don’t always provide the full picture. This is notably true in regions that have undergone recent (positive or negative) changes. In addition to your other research, you should drive through the neighborhood and visit the local police station to gain a more accurate understanding of the area.

Prepare Your Finances

It’s critical to investigate lenders and organize your finances before you start your property search. Choose a lender with a track record of assisting investors with the purchase of the type of property you intend to acquire. You will also be required to provide supporting documentation for your creditworthiness, such as income and expense statements from your current rental properties. Be prepared to provide additional documentation upon request as there may be information or documents needed to qualify for a loan on a multi-family property that you wouldn’t necessarily need for a single-family property.

Hire the Right People

Scaling up to multifamily properties successfully depends on having the appropriate professionals on your team. For instance, you’ll need to locate and employ a real estate agent with the appropriate training and expertise. Find one that specializes in the kind of multi-family property you wish to acquire, if at all possible. You may also want to acquire the local knowledge of a professional property management firm. They greatly benefit the purchasing process and the duration of your property ownership because they are local market experts.

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