Correct Way for Evaluating a Multi-Family Investment Property

October 30, 2019
by Donald La


Those who are already investing in commercial real estate know that there is a substantial amount of potential in this field of investment, and they are always looking for new and lucrative options for investment. One of the top investment options available today are multi-family properties. These investments have a lot of potential, but they can have some drawbacks, too, for those who do not understand how to evaluate a multi-family investment property the right way. It is essential to take the time to know that you are truly getting a good investment.


What Qualifies as a Multi-Family Property?

These investment properties are buildings that have more than a single unit for occupation by tenants. The units in the building are separate from one another, and they allow many families to live there. Townhouses and apartment buildings are some examples. These types of properties tend to be in areas where there is a larger population and where there will, therefore, be a higher rental demand.

Because there will be more than one family paying to live at the property, it means that there will be multiple sources of income. This allows investors to make money relatively quickly, which means it is possible to continue to grow the real estate portfolio. There are several benefits to this type of investment, and the only real downside for many investors will be the price. These properties, because they are larger and have the potential to make more money, will naturally cost more.


Evaluate Multiple Properties

One of the first things that you will want to do when you are learning how to evaluate a multi-family investment property is to look at more than one property at once. You will want to be able to compare properties, so make sure you have a few potential options available. Do not “fall in love” with a property, as that is a surefire way to end up spending more than you should. You should also never buy a property simply because it is cheap. You might end up with a property that is more trouble than it is worth.


Ask Questions About the Property

Once you have a few properties that you are interested in as potential investments, you will want to get to know a bit more about the property and why the current owner is selling. Are they selling for personal reasons, or are they selling because the property is not making any money for them? Are there a large number of vacancies in the property? How long have the units been vacant? What is the rent in the surrounding area? Will there be a chance to raise the rent on these units eventually?

Learning more about the property can give you a better idea of whether the seller is motivated to get rid of the property for personal reasons or if the property has problems that you will end up inheriting.


Check the Numbers

You will also want to make sure that you “run the numbers” when you are evaluating properties to make sure that a purchase will make sense. The owner should be able to provide you with the data you need, including the rental income and the expenses of operating the property. You should look at the return on investment and cash flow. Keep in mind that some sellers will try to exaggerate the property when they are trying to sell it, so be sure to learn the truth about the property and its potential.


What About the Location?

As they say, real estate is all about location. This is also an essential factor you will need to check when you are learning how to evaluate a multi-family investment property. This is one of the most important things to consider when it comes to the overall profitability of the property. Conduct a real estate market analysis for the area and look at properties that are similar to the one you are considering buying. In addition to looking at these comps, you will want to learn how much you can feasibly be able to charge for rent.

The location will also give you an idea of whether an area is up and coming, on a decline, or holding steady. If you find an investment property that is in a declining area, the price might be low, but it will be hard to find renters, and you will not be getting as much money per unit.


Be Careful of Low Prices

Sure, you want to make sure that you can get the best possible deals when you are buying an investment property. However, you never want to make the mistake of being lured into a purchase because of a low price. If the price is meager, it likely means that there are problems with the property that will need to be taken care of before it can start to turn a profit. Those problems might be structural, or they could be a problem with the neighborhood, which you will have no control over.

Fixing a property that has issues can be expensive and time-consuming, and you could end up losing a substantial amount of money on the property. Do not be fooled by a low-priced property that looks like it just needs a little tender loving care. It could be a very costly mistake.


Take Your Time

Investing in these properties can be highly beneficial, but that does not mean that you need a multi-family property tomorrow. Learn the ins and outs of how to evaluate a multi-family investment property and get some help from a specialist in the field. Take your time to find a property that is not only affordable, but that has a great location and the potential to provide you with a great income.

Let a certified commercial real estate broker guide your way to find your perfect multi-family property. Donald La has over 10+ years of experience in aiding others reach their next level of capital. 

About the author
Donald La
Donald La