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The Essential Guide to Investing in Small to Mid-Size Multifamily Properties
Sakeenah Redmond • May 20, 2024
The Essential Guide to Investing in Small to Mid-Size Multifamily Properties
Investing in small to mid-size multifamily properties can be a highly rewarding endeavor, offering stable cash flow, diversification, and potential for appreciation. However, like any investment, it requires careful planning, research, and strategy. This essential guide will walk you through the key factors to consider, from understanding the benefits to navigating the purchasing process, ensuring you are well-equipped to succeed in this dynamic market.
Why Invest in Small to Mid-Size Multifamily Properties?
1. Steady Income Stream: Multifamily properties generate consistent rental income from multiple units, reducing the risk of vacancy and ensuring a steady cash flow.
2. Economies of Scale: Managing multiple units within a single property is often more cost-effective than managing separate single-family homes. Maintenance, repairs, and upgrades can be done in bulk, saving time and money.
3. Diversification: Investing in multifamily properties diversifies your portfolio, spreading risk across multiple tenants rather than relying on a single source of rental income.
4. Appreciation Potential: Multifamily properties have strong appreciation potential, particularly in growing markets. Strategic improvements and effective management can further enhance property value.
Key Factors to Consider When Purchasing
1. Location Analysis:
Location is crucial in real estate. Evaluate neighborhoods based on:
-Market Demand: Look for areas with high rental demand and low vacancy rates.
-Amenities: Proximity to schools, public transportation, shopping centers, and employment hubs can attract tenants.
-Future Development: Research planned developments or infrastructure projects that could impact property values.
2. Property Condition and Potential:
-Inspections: Conduct thorough inspections to assess the property's condition and identify any immediate repair needs.
-Value-Add Opportunities: Look for properties with potential for upgrades or renovations that can increase rental income and property value.
3. Market Trends:
-Rental Rates: Analyze current rental rates in the area to ensure your investment will generate sufficient income.
-Occupancy Rates: High occupancy rates indicate strong demand, making your investment more secure.
-Economic Indicators: Consider local economic factors such as employment rates and population growth, which can influence rental demand.
Financing Options for Multifamily Investments
1. Conventional Loans:
Traditional mortgage loans are available for multifamily properties, often with competitive interest rates. Lenders typically require a higher down payment for multifamily properties compared to single-family homes.
2. FHA Loans:
The Federal Housing Administration (FHA) offers loans specifically for multifamily properties with 5 or more units. These loans often have more lenient credit requirements and lower down payments.
3. Commercial Loans:
Commercial real estate loans are designed for multifamily properties and can offer flexible terms. However, they usually require a strong credit history and significant down payment.
4. Private Financing:
Private lenders or real estate investment groups can provide financing options, often with quicker approval processes but potentially higher interest rates.
Common Pitfalls and How to Avoid Them
1. Underestimating Expenses:
- Solution: Create a detailed budget, accounting for all potential expenses, including maintenance, repairs, property management, and vacancies.
2. Overleveraging:
- Solution: Avoid taking on too much debt. Ensure your rental income comfortably covers your mortgage payments and operating expenses.
3. Ignoring Due Diligence:
- Solution: Conduct thorough research and inspections to uncover any potential issues with the property or market before purchasing.
Tips for First-Time Investors
1. Start Small:
Consider starting with a smaller multifamily property to gain experience before moving on to larger investments.
2. Build a Team:
Assemble a team of professionals, including a real estate agent, property manager, attorney, and accountant, to help you navigate the investment process.
3. Education and Networking:
Invest in your education by attending real estate seminars, reading industry books, and joining real estate investment groups to learn from experienced investors.
Conclusion
Investing in small to mid-size multifamily properties offers numerous benefits, from stable income to diversification and appreciation potential. By carefully analyzing the market, understanding financing options, and avoiding common pitfalls, you can maximize your investment success. Remember, thorough research and strategic planning are key to making informed decisions and achieving your financial goals.
For personalized guidance and expert assistance in your multifamily investment journey, contact Sakeenah Redmond Real Estate. We're here to help you every step of the way, ensuring you make the most of your real estate investments.
2025 Is the Year of Granny Flats in California Everyone knows that lack of affordable housing is a problem, especially in Southern California, but so many of the proposed solutions to it run into insurmountable levels of red tape. Why not just turn that vacant mall into an apartment building? No can do; this is not a residential neighborhood? Why not build duplexes on that golf course? No dice; the rich people would rather have a place to play golf than a place for everyone else to live. What about if the houses are tiny? If they are here, they are still taking up too much room. The good news is that the California legislature has just passed a law that will enable property owners to build additional housing units on their own residential properties. Accessory dwelling units (ADUs) were once seen as a money-saving strategy for cheap but controlling people who wanted to keep tabs on their elderly relatives without going as far as to let their elderly relatives live in their houses with them. If you plan to build one or more ADUs on your property and want to make sure that you are complying with current laws, contact a California real estate law attorney. SB 1211 Brings Affordable Housing Right Into Your Backyard Accessory dwelling units (ADUs) are small houses built on the grounds of an existing residential real estate property. At minimum, they have a bedroom, a bathroom, a kitchen, and a seating area. Some of them are free-standing structures, popularly known as granny flats, while others are finished basements or otherwise adjoining wings to the main house; the latter kind are popularly known as mother-in-law suites. Until recently, the law restricted property owners to two ADUs per property. Pursuant to SB 1211, which goes into effect this year, a residential real estate property can have up to eight ADUs in addition to the main house. This is a boon to people who bought too much house and are now lonely and strapped for cash. It is also a boon to home improvement contractors, but most of all to people who are looking for apartments but finding that nothing is available because all of the livable land is being taken up by McMansions and their huge backyards. By building ADUs on your property, you can reap the economic benefits of a multigenerational household while keeping the peace because every adult or every couple has their own kitchen and bathroom. You can also bring in rental income by renting out ADUs on your property. ADUs are a win-win situation for owners and tenants, and if you want in on the action, a real estate lawyer can help you navigate the legal aspects. Contact SNR Real Estate Group to purchase your next A real estate attorney can help you if you are planning to build ADUs on your property to establish a multigenerational household or build your own real estate empire. Contact SNR Law Group in Tustin, California to discuss your case. Sources https://www.fastcompany.com/91242299/how-californias-adu-law-transforms-multifamily-real-estate
Real Estate Love Letters Only Make You Look Like a Fool or Worse Trying to impress people is exhausting. It is the worst part of living in L.A., worse than the smog and the terrifying traffic and the astronomical prices. Everyone spends a fortune on cosmetic surgery and makeup and then lines up for cattle call auditions, hoping that one of the people evaluating them will be someone they once met at a networking brunch about which they still entertain fantasies that they stood out from the crowd. It is not only the Tinseltown airheads who have to live with this level of impressing people; the lawyers, the office receptionists, and the restaurant servers have to do it, too. If only you were rich and you could silence people with your money instead of stunning them with your smile. The good news about real estate is that money talks. Being ugly and inarticulate will not exclude you from a real estate purchase if you can pay the asking price; beyond a certain budget, it does not even matter if your real estate agent is charming. Of course, in pricey and competitive real estate markets like Southern California, money is not enough, even when you get past seven digits, and you need to turn on the charm to buy a house. For help closing a real estate deal without having to humiliate yourself by writing a real estate love letter, contact a California real estate law attorney. The World Needs Less Love and More Respect Real estate love letters are as gimmicky as they sound. Sometimes, in addition to an offer of money for the purchase of a house, the buyer sends the seller a letter, trying to persuade the seller that the buyer would be a perfect fit for the house. Love letters include personal stories, and as such, they reveal a lot about the buyer’s cultural and socioeconomic background. Some people include pictures, which reveal information about the prospective buyer even beyond what the letter says. There are even e-commerce sites that sell pricey stationery for real estate love letters. Real estate agents have recently started to discourage prospective buyers from including love letters as part of the offer package. Sometimes, if the prospective buyer writes a love letter, the buyer’s agent will not even show it to the seller. The growing sentiment is that real estate love letters are a recipe for housing discrimination. You should choose a buyer for your house because they make a fair offer and do not create drama during the purchasing process, not because they have adorable, blond children and share your taste in Christmas tree décor. Professionalism will get you farther than charm will when it comes to buying a house, even in today’s competitive market. Contact SNR Law Group About Real Estate Purchases A real estate attorney can help you make a good impression on the seller without having to resort to gimmicks like real estate love letters. Contact SNR Law Group in Tustin, California, to discuss your case. Sources https://www.msn.com/en-us/money/realestate/real-estate-love-letters-no-longer-good-idea/ar-AA1vbNnF?ocid=msedgntp&pc=ACTS&cvid=72bc3e8fddb24cea8c7fc3dd279de9aa&ei=34
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Does Downsizing Your House Really Make Your Life Easier? As soon as travel restrictions were lifted and financial long COVID set in, the purveyors of web content began trying to sell people dreams of making major life changes. No matter where you clicked, you saw articles about singles, young families, and retirees who left everything behind and moved to Finland, Chile, Slovenia, or somewhere else where the grass is supposedly greener. Likewise, if you are in the workforce, it seems like everywhere you look, you find content urging you to join the Great Resignation or, worse, be a tradwife. You are far too levelheaded a person to go chasing radical life changes, but the financial stress is getting to you. You are also old enough and wise enough to know that brewing your coffee at home instead of buying it at the McDonald’s drive-through every day will not make a big dent in your dents; for major changes, you must reduce your housing expenses. Will downsizing your house help your finances, or is it just another hassle? For help thinking clearly about selling your house and buying a smaller one in a less expensive area, contact a California real estate law attorney. Empty Nest or Multigenerational Household? One of the most common events that precipitate people to move to a smaller house in a less expensive area is their children growing up and moving out. Once your children are grown up, living near their school is no longer an issue, and as you approach retirement age, living near your workplace matters less, too. There is nothing tying you to chaotic, pricey Southern California, so you might as well move somewhere cheaper and more peaceful. There are two counterarguments to this line of thinking. The first is that moving is stressful and expensive; even if the move eventually brings you peace of mind and financial relief, things will get harder before they get easier. The other consideration is that your children might need to move in with you in the future. Yes, if you buy a cheaper house, you can give them money if they need it, but job opportunities are more plentiful in the big cities. Besides, multigenerational households rule. Your grandchildren will learn your heritage language, and you will share meals and household responsibilities. Householding is a Young Person’s Game Sometimes, the motivation for downsizing your home is not financial. Instead, it arises from a realistic view of your own health. If you are not as young and healthy as you were when you bought your house, ordinary household tasks can be burdensome, as can going up and down the stairs. A smaller house is more manageable, and it will leave you more money to buy long-term care insurance, which can save you from financial catastrophe. Contact SNR Law Group About Downsizing Your Home A family law attorney can help you make wise decisions about selling your house and moving to a smaller and cheaper one. Contact SNR Law Group in Tustin, California, to discuss your case. Sources https://www.msn.com/en-us/lifestyle/home-and-garden/5-signs-it-might-be-time-to-downsize-according-to-realtors/ar-AA1t6duE?ocid=msedgntp&pc=ACTS&cvid=81ae4de578764bc3ab3e10e767d7307d&ei=52
Are High Mortgage Rates Here to Stay? Luck plays a bigger role in real estate purchases than you might imagine. If there is a desirable house, chances are that the owner wants to keep it indefinitely; you have no chance of buying it unless the current owner lists it for sale. Furthermore, your chances of being able to own a house, desirable or otherwise, depend largely on the circumstances into which you were born. The current generation of homebuying-aged adults is acutely aware of this; most Millennials who have never owned a house will never be able to afford one unless they receive a cash gift from their parents to increase the size of the down payment, or unless their parents cosign with them on the mortgage loan. Finally, mortgage rates fluctuate so much that people who were ready to buy a house in 2021 are rolling in dough since mortgage rates were below three percent, whereas people who were house hunting in 2023 are still house hunting, since mortgage rates have been consistently unaffordable since around the time that restaurants reopened their dine-in seating. For objective advice about real estate purchases, instead of just pressure to buy, contact a California real estate law attorney. Do Not Get Your Hopes Up About Mortgage Rates Going Back to 2021 Levels Every mortgage is unique, but average mortgage interest rates help you compare the affordability of home mortgages across time. According to the most recent data from Freddie Mac, the average mortgage interest rate in October 2024 is 6.3% for a 30-year mortgage. Interest rates tend to be lower for mortgages with shorter terms, but those mortgages are harder to get unless you can make a down payment from the sale of a previous property. Mortgage rates had been trending downward, but the most recent average of 6.3% is higher than it was a few weeks ago. When you compare it to this time last year, though, when the average mortgage interest rate was 7%, a 6.3% interest rate seems like a steal. Encouraging News About the Real Estate Market If you were one of the few people who managed to qualify for a home mortgage loan when the interest rate was 7% or higher, now might be a good time to refinance before interest rates go back up to where they were before: a fraction of a percentage point in mortgage interest makes a big difference in your monthly payment. If you have been waiting for an affordable mortgage, take heart. There are more houses for sale than there were a year ago, which means that sellers will have more of an incentive to price their houses competitively; it is not as much of a seller’s market as it was a year ago. Contact SNR Law Group About Real Estate Purchases A real estate attorney can help you think clearly about applying for home mortgage loans. Contact SNR Law Group in Tustin, California, to discuss your case. Sources https://www.npr.org/2024/10/13/nx-s1-5143339/why-mortgage-rates-have-gone-up-and-when-they-might-settle
While most renters are honest, some try to manipulate the rental process. Renter scams can stem from financial difficulties, desperation, or opportunistic behavior. Here are 5 common rent scams landlords should be aware of: Money wiring scam: An applicant overpays with a forged check and requests the excess to be wired back. The check bounces, leaving the landlord with a financial loss. Falsified documents: Applicants provide fake pay stubs, rental histories, or IDs to appear more qualified. This leaves landlords with residents who may not be able to pay rent or have hidden issues. Unauthorized subletting: Residents rent the property to someone else without the landlord's knowledge, collecting payments while abandoning the lease. Both the landlord and subletter are left in a tough situation. Nonpayment of rent: There are "professional renters" who exploit legal loopholes to delay eviction, staying rent-free for months or more and leaving landlords with significant losses and perhaps property damage. False maintenance claims: Residents fabricate repair issues to avoid paying rent, forcing landlords to spend time and money investigating nonexistent problems. How to help detect renter scams Verify documents: Cross-check formatting, pay amounts, and other details on supposed official documents. Confirm employment and rental history: When possible, call employers and previous landlords using public sources. Verify rental histories carefully. Use technology: Implement online applications, screening, payments, and background checks to avoid issues with falsified documents and fraudulent payments. Lastly, after the renter moves in conduct regular inspections to help ensure property is clean, being cared for, and to detect unauthorized occupants or property misuse.
California Laws on Rental Application Fees and Tenant Screening The only thing that landlords fear more than vacant units is troublesome tenants. An unoccupied unit means that the landlord is responsible for all the costs that the tenant’s rent would cover. Of course, if a tenant moves in but does not consistently pay rent, the landlord faces the same financial losses, or maybe worse. You might be responsible for the legal fees associated with eviction proceedings. If your tenant antagonizes other tenants or commits crimes, you might be a defendant in a civil lawsuit since it is your responsibility as a landlord to screen tenants before allowing them to move in. An important part of the tenant screening process is following all the laws designed to protect prospective tenants from housing discrimination. For help navigating the tenant screening and background check process, contact a California real estate law attorney. What Are Rental Application Fees, and How Much Can They Cost? To cover the costs of pre-housing background checks, landlords have the right to charge tenants an application fee. Almost everything is more expensive in California than in most places in the United States, and rental application fees are no exception. According to California law, the maximum allowable rental application fee is $63.75. For purposes of comparison, this is more than twice the maximum allowable application fee in Maryland, which is $25. Of course, California requires landlords to refund tenants’ application fees if the landlords use the money for purposes other than conducting background checks. In most other places, application fees are not refundable under any circumstances. Rental application fees are not the same as security deposits, and California law does not allow landlords to bundle the two. Security deposits are always refundable; the maximum amount that California landlords can charge for security deposits is one month’s rent. Tenant Background Checks Are Legal, but Housing Discrimination Is Not Landlords can and should require prospective tenants to prove that their income is sufficient to pay the rent each month. They may not, however, discriminate against prospective tenants based on the source of the income; it does not matter whether the tenant got the money from a steady job, 1099 gigs, a trust fund, or government benefits, including but not limited to HUD vouchers. Landlords have the right to perform background checks that reveal information about the tenant’s previous interactions with the criminal courts, if any, as well as the tenant’s credit history. Before you initiate a background check, you must provide the tenant with disclosures about the background check laws; have the tenant fill out a pre-background check form and sign it. You may ask them to provide copies of government-issued photo IDS and vehicle registration if they plan to bring a vehicle when they move in. Contact SNR Law Group About the Struggles of Being a Landlord A real estate attorney can help you identify suitable tenants while complying with tenant screening laws. Contact SNR Law Group in Tustin, California, to discuss your case. Sources https://www.azibo.com/blog/california-tenant-screening-laws
Would HUD Voucher Reform Mean a Windfall for California Landlords? Whoever said that owning rental properties is an easy source of passive income has never done it. When you own the property, you are responsible for making all of the repairs and paying the mortgage payments. All the tenants have to do is pay rent, but when push comes to shove, you really cannot force them to pay. If you signed a lease that indicates the rent payment amount, but the tenants breach the lease by not paying, you can evict them, but eviction is such an annoying and time-consuming process that sometimes it is just easier to do nothing and hope that the tenants eventually pay up. When your chances of collecting the rents due on your rental properties this month are subject only to the vicissitudes of the gig economy, it is difficult enough. When tenants only pay a portion of the rent and the rest of the money comes in the form of a housing voucher from HUD, landlords have an even more thankless job. Fortunately, the Department of Housing and Urban Development (HUD) is now floating an idea that has had a strong following in California for a long time, namely giving the rent money directly to beneficiaries to pay to their landlords. Of course, it will take time and a lot of political contortions to get this change to come to fruition. For advice about being a landlord in uncertain times, contact a California real estate law attorney. If You Think Collecting Rent From Tenants is a Pain, Try Collecting Rent From the Federal Government In its current form, HUD’s housing voucher program satisfies no one. For everyone who is living in an apartment partially paid for by HUD, there are at least three people who are waiting for their HUD housing benefit applications to get approved, and some of them have been waiting for years. Even worse, about half of the people who get HUD vouchers can never use them; the vouchers expire after only a few months, and some beneficiaries cannot find a landlord who is willing to rent to them by the time the voucher expires. Once a landlord and a voucher recipient match, the frustration is only beginning. HUD does not pay money directly to landlords; the landlords must submit a mountain to paperwork to multiple parties before receiving a penny of rent money for the voucher. HUD is starting to realize what many nonprofits in California already know, namely that things are simpler when the tenants receive the money directly. HUD is considering paying the voucher amounts directly to eligible tenants, and letting them pay it to their landlords. If the tenants do not pay, landlords will be able to pursue them for payment just like they do tenants who get all their rent money from employment or a family trust. Contact SNR Law Group About the Struggles of Being a landlord A real estate attorney can help you if collecting rent from your tenants is always a hassle. Contact SNR Law Group in Tustin, California to discuss your case. Sources https://calmatters.org/housing/homelessness/2024/03/california-renters-federal-cash/
Easements and California Law There are various kinds of real estate ownership rights, such that it is possible to have some kind of right to use the land, even if you are not the official owner. Easements allow one party to use part of someone else’s land without depriving the original owner of ownership. For example, a developer should get an easement if they want to build a road that crosses someone else’s private property. Easements are a practical way to prevent and resolve disputes over land ownership and the boundaries between neighbors’ property. As with any property-related matter, from business contracts to prenuptial agreements, your greatest source of strength is a detailed written agreement. For help drafting or interpreting an easement agreement, contact a California real estate law attorney. The Right to Use Part of Someone Else’s Land for a Limited Purpose Imagine that John owns a farm that is right next to the main road, and Ted owns a farm that is directly behind John’s, such that the only way that Ted can easily get to and from the main road is to go across John’s land. In fact, his only way to access any main road to get to the town or the highway would be to go across one or another neighbor’s land to one or another neighbor’s road. The easiest solution to this is for John and Ted to agree that Ted has the right to drive his vehicles on a dirt road on John’s land and to authorize his visitors and employees to use this same road. This is an easement. It is the best solution when you consider the alternatives. For example, it is better than Ted having to buy a narrow strip of land from John so that John’s farm is not contiguous. It is better than Ted having to rent the land from John such that they would have to deal with all the issues of a landlord-tenant relationship. What Easements are Not Easements are different from other types of land use agreements. By granting an easement to Ted, John is not giving him the right to plant crops on the land or build a house there. In other words, Ted is not a tenant, and an easement is not the same as a lease. An easement also does not mean making the land open to the public for recreation such as hunting or fishing. It is also not a license, such as when theaters and other places of recreation charge admission. Easements usually involve driveways and small roads that cross one person’s property in order to make another person’s property accessible. Another common use of easements is when companies build pipelines that cross private property. Contact SNR Law Group About Easement Disputes A real estate law attorney can help you resolve disputes that arise from easements, whether you own the property or have an easement on someone else’s property. Contact SNR Law Group in Tustin, California, to discuss your case. Sources https://www.clta.org/page/article6/A-Legal-Introduction-to-Easements.htm
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