Multi-Family Home Investment
Purchasing a multi-family home can be a lucrative investment, but it can also be a severe liability if you do not do your research ahead of time. The first step in the purchase process is to find a good commercial realtor.
Why a Commercial Realtor?
Real estate sales have always been a complicated transaction to execute thoroughly, and since the crash of 2007, it has become ever more complex. Real estate laws vary tremendously by state. That is one of the reasons it is so important to find a licensed and experienced realtor in the state you are looking to invest in. Some states have separate licensing requirements for realtors working in commercial sales verses residential. Even if you are in an area where realtors are licensed to handle both, it is important you choose one with experience in the commercial side. This is the first step in protecting your future investment.
There are Three Methods to Determine the Value of a Multi-Family Home
1.Cost Approach This method determines the value of a property based on the cost it would take to physically replace the building. This is highly variable and therefore the least commonly used method.
2.Sales Comparison This method compares the property with others in the area of similar size and capacity that were most recently sold. The value can be an average of the total sale prices.
3.Income Capitalization Approach This method shows the net income in proportion to the purchase price, making this a highly valuable assessment when purchasing a multi-family home.
Property Management Companies
Hiring a property management company is an important aspect to protect your investment. Good companies will market your property well and keep vacancy rates down. This, in turn, affects the value of your asset as we described using the income capitalization approach. They will also handle all necessary legal aspects of the tenant-landlord contract such as handling evictions, creating a binding lease that protects your property, and most importantly – protecting you personally. There are many housing laws that apply to the tenant-landlord agreement and often vary by state. A good company will protect you by having a working knowledge of the state laws and keeping your business in compliance.
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