Did you know that 13% of Americans move during the year? With that kind of mobility, you can trust that there will always be a market for rental properties. That’s why investing in real estate for passive income potential might just be worth it.
Even so, it’s smart to be prepared. Keep reading to find out 4 things to know before buying a multi-family home!
- Don’t Take on Too Many Rental Properties
While you might want to dive in and start buying up properties, don’t do it. It’s better to start small with one property. Stick with buying a property that is qualified as residential, too.
If you invest in larger rental properties that house more families, you might be investing in a commercial property. Mortgage lenders tend to set the bar higher when it comes to qualifying for a loan. Consequently, it might be harder to get financing.
On top of that, it takes more time and effort to manage bigger properties. Hone your management skills with a smaller place first!
- Understand the Cost Implications
The thought of a secondary form of income is appealing when you’re looking at real estate listings. But don’t overlook scenarios where you’ll end up paying more. For instance, if you have vacant units, you’ll need to cover that portion of a mortgage in addition to utilities.
Additionally, you will need room in your budget to pay for repairs, landscaping, and other services. Plus you might have to enlist a real estate agent to help advertise units.
Be aware that you’ll need to spend a little more time on your taxes, too. But also know that you can write off some expenses to help your income improve.
- Get Financing in Order
Unless you have a lot of money saved, you’ll need to secure financing from a reputable lender. Aim to have a good credit score before heading in to talk to different lenders. This will demonstrate that you’re responsible and will make timely payments on the loan.
Also, know that you may need to put more money down initially. When you buy a house, you can put down 5%. But when you’re looking at bigger properties, you may need to put down 25% of the total cost.
- Consider Location When Buying Property
Look for multi-unit buildings for sale in a desirable area of town. This will make your life easier as the property owner in several ways. You probably can score a better price somewhere else, but you may struggle to fill the units and get unreliable tenants.
In a better part of town, it will be easier to fill the units since people will want to live there. You’ll also see property values go up. If you ever decide to sell the property, you’ll be able to command a profit.
Plan on Buying a Multi-Family Home
Buying a multi-family home carries passive income potential as well as a lot of responsibility. Start small with residential properties and choose a location with lots of appeal. Get your financing ready early, and know what kinds of fees and costs will impact your bottom line.
For more real estate advice, check back soon to read new articles.