How to Purchase Multi-Family Properties
Multi-family properties are popular investments, because they can serve as appreciating assets that yield reliable streams of income. However, finding a property that provides value can be a challenge if you don’t know what to look for or how to obtain financing. The Las Vegas and Henderson markets have an abundance of multi-family properties to choose from, but it can be difficult to get started. Once you learn how to buy a multifamily property, you can begin your search for the one that will ideally complement and grow your portfolio.
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Multi-Family Properties Come In All Shapes and Sizes
There are many different types of multi-family properties you can choose from depending on your budget. Your property search will be determined by several constraints, including how much income you hope to generate, the time you want to invest as a landlord, and the areas you wish to invest in. The types of properties you can choose from include the following:
- Package Single-Family Homes
- Duplexes
- Triplexes
- Quadruplexes
- Condo buildings
- Apartment buildings
- Affordable housing
- Senior living facilities
These buildings also fall into one of three subgroups: low, medium, or high-rise. Low-rise buildings are typically 1-4 stories, while mid-rise buildings have 5-10 stories. Buildings taller than this are considered high-rises.
Hire the Right Broker and Other Experts
Buying real estate takes a lot of time and effort, which is why it’s useful to hire a broker to assist you throughout the process. A real estate broker can guide your search and manage the buying process for the property you select. They can take care of the paperwork necessary to close your deal, allowing you to focus on any other work you may have to do or decisions you will make. They will have a network of professionals they can call on, such as attorneys and lenders, to streamline the buying process.
Choose the Proper Financial Lender
Loans for multifamily properties face steeper terms than residential loans, but the process of obtaining one is similar if you go through a commercial bank, insurance fund, or a credit union. A commercial lender’s down payment requirements are based on several underwriting criteria, however, there are four primary factors:
- Credit worthiness of borrower
- Liquidity of borrower (do they have access to cash for adjusting marketing conditions?)
- The value of the asset, its condition, and location
- Borrower experience
However, If you’re purchasing as a relatively new investor, you can expect to pay 25% of the building’s price up-front.
If you are purchasing a building larger than four units, in addition to a higher down payment, you will also face a credit check. A better credit score will allow you to obtain a higher loan at a better interest rate. You’ll also need assets in reserve that can pay for a minimum of six months worth of mortgage payments, and possibly more, but potentially fewer depending on your circumstances. Lenders will require historical profit and loss statements for a two and one-year rent roll. Commercial Loans tend to have a shorter maturity period, such as 10 years. However, they will generally amortization the loan over a 20 or 25 year period.
New to Multi-Family Investing?
Consider starting with a fourplex, which can qualify for a traditional 30-year mortgage. If you are willing to live in one of the units, you can use an FHA Loan. Loans insured by the Federal Housing Authority are available for multifamily properties, but they can only be used on buildings with one to four units, such as duplexes, triplexes, or quads. The building will need to be your primary residence, not an investment property. Additionally, the income you can get from tenants can’t go toward your own qualifying income when applying for the loan.
Refine Your Search
When you begin your search for a property, select a geographic area you’d like to invest in, then take a look at nearby amenities, such as schools, grocery stores, entertainment opportunities, fire and police stations, and anything else that could attract residents. Next, narrow down your search to a neighborhood within the area. Alternatively, if you’re set on finding a current property, you can begin from that point and then select the one that has the best location.
Necessary Insurances
You’ll need some insurance to protect yourself from liability claims by renters and as a guarantee against potential damages to your property. Generally speaking, there are two major types of insurance policies: named-peril and all-risk. Named-peril policies only protect against certain threats, such as fire, flood, or explosions, while all-risk policies include broader coverage of most liability claims. If you have on-site personnel, you will need to include Workman’s Comp insurance. It’s important that your insurance policies don’t leave gaps in coverage or you could be liable for damages and place your assets at risk.
How to Find Multi-Family Properties for Sale in Las Vegas
If you’re interested in buying a multifamily property in Las Vegas, work with a team of experts who can help you find the best deals on the market. The Graham Team at Graham Team Commercial Real Estate has a deep knowledge of the Las Vegas and Henderson markets. As a developer, our founder Gidget Graham bought and sold over $1.3 billion in real estate assets and today owns or leases a wide range of investment properties. We deliver to every one of our clients integrity, service, and results, and look forward to working with you.
