Investing in a multi-family home can be a smart financial move. As a first-time landlord, however, you could run into some unexpected issues.
Keep these factors in mind to increase your chances of profiting from this type of property.
Look closely at location
Check crime rates to make sure the home is in a safe neighborhood. Consider proximity to schools, shopping centers, public transportation and job opportunities. A well-located multi-family home tends to have better rental potential and resale value.
Budget wisely
Determine your budget before you start house hunting. It should include the purchase price and ongoing expenses like property taxes, insurance, maintenance and repairs. Remember to factor in vacancies as well.
Hire a property inspector
Have a professional assess the property for structural issues, electrical problems, plumbing concerns and signs of water damage. This step helps you avoid costly surprises down the road.
Check zoning regulations
Ensure that the property has zoning for multiple families to avoid legal issues. Contact the local zoning department to confirm the property’s status.
Assess rental income potential
Research current rental rates in the area for similar properties. Do the math to see if the property will generate enough income to cover your expenses and provide a profit.
Many parts of New Jersey have high rental demand. This increases the fair-market rent you can charge for each unit. According to US News and World Report, the state’s rental vacancy rate is 3.1%. In comparison, the US Census Bureau reports a national vacancy rate of 6.3%.
Review existing lease agreements
You can potentially see an immediate profit if the home already has renters. Make sure you understand the terms, rent amounts and responsibilities you will inherit as the new owner.
Consider maintenance needs
Multi-family homes require ongoing maintenance. Estimate the cost and time needed to keep the property in good condition. Neglecting maintenance can lead to higher expenses in the long run.
Plan for property management
Decide whether you will manage the property yourself or hire a management company. Taking care of multiple units can be time-consuming, so consider your availability and property management knowledge before you go it alone.
Explore financial options
Look into traditional mortgages, FHA loans and other financing methods available for multi-family homes. A good credit score and a substantial down payment will improve your mortgage terms.
Research legal requirements
Be aware of local landlord-tenant laws, eviction procedures and building codes that apply to multi-family properties. You have to follow these laws to avoid fines and other penalties.
While buying a multi-family home can be a rewarding investment, it requires careful consideration and planning. Thoroughly evaluating these factors prepares you to make a smart decision.