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3 Tips for Investing in Multifamily Properties

Investing in multifamily properties can be a great investment. Unlike single dwelling units, multifamily could boost your income while reducing vacancy rates. Before deciding to expand your portfolio, it is important to do your research.

What is a Multifamily Property?

A residential property that has more than one unit – duplexes, triplexes, and apartment are some of the most common examples. Some investors choose to live in one of the units and rent out the remaining units.

Tips for Investing in Multifamily Properties.

Incorporating multifamily real estate is a unique experience when compared to building a portfolio of single-family properties. These tips could help you make the right decision:

  1. The 50% rule
  2. Figure out your cash flow
  3. Know your cap rate

The 50% Rule

The 50% rule is a guideline used to determine the profitability of a rental property. 50 percent of the rental income should be set aside for designated expenses and not included in potential profit. This rule helps investors quickly make an informed decision about investing in a particular property.

Figure Out Your Cash Flow

Cash flow is how much money you’ll put in your pocket. To calculate this you’ll subtract the estimated mortgage from your Net Operating Income (NOI). This will give you your cash flow and help determine if the investment is worthwhile.

Know Your Cap Rate

The third calculation is capitalization rate, or cap rate, and determines how quickly you will get a return on your investment.

Cap Rate = NOI/Purchase Price

Keep in mind, the cap rate doesn’t account for many factors. Other factors to consider include property value increases or tax breaks for owners of multifamily properties.

Cap rate can also be used to determine a property’s value, which could be used when negotiating a purchase price for a multifamily investment property.

Our Real Estate experts are available to assist you when you’re ready to take the next step and expand your investment portfolio.  To get started, schedule a call with a Yolo Federal representative or click here to learn more about how to apply.

 

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