Ever thought about investing in real estate for income? Getting that check in the mail may be closer than you think. Investing in real estate can generate cash income, appreciate and with the right maintenance and management, provide stability for years to come.
A good first investment are properties consisting of 1-4 units – the financing for this type of property can be like mortgages for a primary residence. Larger buildings have “commercial” financing available, which is structured differently and often tailored to a particular building. No matter what kind of property you want to buy, there are a few consistent concepts to be aware of:
Run a snapshot of numbers first. Doing this upfront will save enormous amounts of time and effort on evaluating properties. You can get an idea of a property’s potential by evaluating its:
● Cap rate (% return on price paid)
● Gross multiplier (metric measuring price to gross revenue)
● Operating expenses
● Vacancy rate
● Pro forma revenue projection
● Return on your cash investment if you plan to finance.
While marketing materials from sellers sometimes state these figures for a property, seller-provided numbers can use aggressive assumptions based on the seller’s interests and may occasionally contain inaccuracies. Running calculations from a buyer’s perspective will identify these issues and will strengthen the evaluation of a property.
Get lined up with a lender early in the process. This enables you to move quickly. If you wait to talk with a lender until you find a property you like, it is very possible someone already has financing lined up and will have a jump on making an offer. (This is just as true for residential real estate.)
Due diligence. Many of us think about the inspection period during escrow as looking for defects in the property. Multifamily properties also require inspections regarding compliance with laws, regulations and permits. A seasoned inspector as well as a highly knowledgeable attorney can defuse landmines that may come up.
Operating expenses. Any income producing property will have operating expenses, including taxes, utilities, insurance, fees and permits, maintenance and repairs, and property management fees.
Understand the legal and regulatory landscape. A dollar’s worth of legal fees before you buy can save thousands of dollars of headaches after you close. Some buyers can be reluctant to spend money on an attorney upfront during the diligence process or even prior to making an offer. However, when seeking a positive return on an investment of this size, you can avoid many unpleasant surprises by hiring a qualified real estate attorney.
Investing in real estate for income and growth is reachable for many folks, and I and my team can help you streamline this process. We work with a team of experienced and tested lending, legal, and inspection professionals to position you to secure your real estate investment. Post-purchase, we offer discounted building management fees for the first two years, keeping your investment in top shape. Most importantly, we are there for you every step of the way to manage a successful and smooth transaction.
Reach out today to find out more how you can invest in income-producing real estate and grow your wealth.