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what factors do i have to consider when buying a multi family property?

How do I determine the price to offer when negotiating for a multi unit property for rental.  Where can I find information such as average cap rate, renters demand for apartment, average selling price and where to find out the area is good to buy investment properties?
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August 20 2011 - Allentown
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Answers (9)

Definitely follow some of the advice that has been given here. In addition, a few things you should consider that many new multi-family investment owners don't consider:

Do not invest in areas you are unfamiliar with
Therefore, spend time in the area AND talk to neighbors. Most people are blunt about their neighborhood and will give you an accurate idea of the 'scene'.

If you will not have a mgmt company: Live nearby.
Too many first time investors get properties that are inconvenient to manage adding all sorts of stress to their life.

Responsible hands on landlords get solid tenants.
Living there is always the best bet. But when that's not possible, it's imperative that you offer clean and safe apartments. Respond to your tenants in a timely manner. Be friendly with the tenants. But you must, absolutely must screen slowly and carefully. This is not about how much cash somebody has or what their credit is (albeit important factors), but rather how they deal with you during the interview. This is the part that takes some talent in the ability to read personalities. If somebody either strikes you as being too difficult or too good to be true, there may be something to that. You can't discriminate on many factors (most of them physical), but there is nothing illegal about not renting to somebody because you feel they will be a problem to other tenants. You just have to demonstrate why.

Start off small
If you don't like it, it's a lot less risk and stress to get rid of

Be committed to being part of the neighborhood
Buildings that don't landscape, leave lights on, allow litter to build up outside and in the building, don't interact with other building owners to upkeep block and deal with potential crime issues contribute to block decay which only hurts the local population and allow bad elements to thrive, which of course, drives down values.

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December 06 2011

aside from securing a favorable purchase price, quality of the tenants in your local area is the most important concern. Consider renting out each unit at a price that people in your area can afford and pay on a consisten basis, rather than trying to get the highest possible rent you possibly can - some people will commit to pay the higher rent and after a few months start to default on their payments. Always check credit before signing a lease with any renter.

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December 04 2011
I have helped buy and run 2 units up to 20 and most of the headaches are the renters. The investor should decide if they want to manage a hands on approeach or hire a service.  The benefit of "hands on" is monetary and to manage is  much less stress. Also affects the bottom line of Cap rate and value of the investemnt. Remeber the rents should be double checked I have noticed on the MLS that they are wrong many times. Agents sometimes put a Gross instead of NET amount and that will sqew the price for you. Also look at the rental sites online and for local research "I also call around the apartments near mine" local ads and renters magazines to see the amenities and going rates near your future purchase.
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November 20 2011
Get in touch and I can forward you quite a bit of excellent real time, local data. I am a Lehigh Valley native and have been around awhile :)
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November 18 2011
In investigating a multi unit purchase, I hate look at average numbers.  I like to work with the existing rent rolls, and see if they will satisfy my rate of return.
David Cooper
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August 21 2011
Hi Peter, I suggest that you contact a buyer agent who has experience with multifamilies.  Also have a word with your accountant to figure out if this this type of investment is right for you.  I have sold many multifamilies through my professional career in real estate, and I can tell you that the responsibilities of owning multifamilies are not for everybody.  Imagine, just for one second, all the maintenance you do at your present home, and multiply that times the units on the multifamily building.  Unless you secure the services of a management company, you will also have to market the property, create the lease agreements and ensure that they are carried out by the tenants, such as late fees, pets, extra people in the units, respect for the common areas, etc....you may even need to evict a few tenants in the future....if you are still in the mood to invest in multifamilies, I will be happy to put in touch with an agent in Allenstown.  Good luck!  
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August 20 2011
Existing Tenants, Rent Rates, Expenses, Repairs (Esp. Furnaces, Electric, and Roof) .. to name a few ..
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August 20 2011
Propeety management is my number one concern.

David Cooper
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August 20 2011
Peter
I have bought land, single family, and multi family properties, and helped many others buy form small duplexs to a 52 unit appartment building.

The factors that need to be explored fill books. But the first step is matching what you need with your money or financing. After that the items you mentioned come into play.

Your realtor can create much of this but the best way is get out into the neighborhood. Call for rent signs and have your agent produce past history. Good luck. But nothing beets getting your feet on the street. I can help you avoid costly mistakes.
Benny Smith
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August 20 2011
 
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