One question that nearly every investor throws at us is, “How’ll I know whether a multifamily deal is profitable?” Now, that’s a valid question because you, the investor, are paying your hard-earned funds. In this post, we’re giving every investor, having similar concerns, an answer-and we’re even giving these investors top two mistakes to avoid while vetting a multifamily deal.
With experience and practice, it’s possible to challenge the numbers and value found in a property-offering memorandum. For example, how’ll you know if the income is correct? Likewise, expenses can seem to be extremely straightforward, but are they really that transparent?
So while buying multifamily investment properties, you must have either the experience or the support of a reliable alternative lender. Now, let’s explain the different mistakes that even the most seasoned investors commit while analyzing a multifamily deal.
Know the repairs, unit turn costs, and capital expenses
You needn’t overlook the fact that you may have to shell out a hefty sum for critical capital improvements from the first day of ownership. That’s not all–you may even have to pay for unit turn costs and general repairs. All such repair jobs become unavoidable if you bought a rental property.
When you have a rental property, it’s extremely important to know the current market rents and expectations. For example, a buyer/property owner may suddenly expect a renter’s expectations rising when the rental market is sluggish. In that case, every prospective renter will demand the best rental units having the finest amenities. So if you have rental units that are vacant and dilapidated, then it’s better to refurbish them so that they meet a renter’s standards and expectations.
Faulty assumptions that current unit rental amounts are sitting at the existing market rate
A buyer of multifamily real estate will always find ways to raise current rents. However, before raising rents, you’ll have to ensure whether the market allows you to do that. For example, you can calculate the rent of any unit by closely analyzing the target residents and their respective income groups.
A few property owners may even give concessions to their renters just to attract them to take the renting opportunity. These concessions are often calculated after carefully analyzing the salary of a renter. The concessions may include discounted rent or free rent for the last month.
So these are the two common mistakes that almost every multifamily investor is liable to commit while analyzing a deal.