As the residential market drags across the “bottom” we have all been waiting for, now is the time to keep your options and mind open to all the opportunity whirling around us.  One facet of the market that has been picking up steam is the multi-unit property arena. Multi-unit or multi-family property investing is not for the faint of heart. There are plenty of pitfalls to watch out for at this level of investing.  You may have the possibility of a higher profit margin, though as we know, no risk no reward.  Let’s just try to limit the risk and enhance the reward. Most investors see Realtors as an unneeded expense when purchasing residential investment properties; you may want to rethink this strategy for the multi-unit properties, at least until you are more familiar with what to watch for. You do not want to leave any money on the table so let’s go over what you need to know about the property before you buy. Let’s go back to basics and ask yourself the what, where, when and why of buying a multi-unit property.

The “what” should include the following:
What is the condition of the property?

First and foremost as buying any residential property that has to be lived in, you need to know how much work you may have to put into the property that will now bear your company’s name.

What are the number of total units?

Your title company will have different costs and conditions for title insurability if you are buying a 1-4 unit property than they will if you buy a 5 and up unit property. Although the property is zoned residential once you go over 4 units you bump yourself into some of the more “commercial” applications for title insurance requirements.
What is the number of units rented and what is the number of vacant units?

The answers to this question are elementary to your due diligence. You not only need to know what the rent is but the terms of each rental agreement you will be taking over via “assignment”. You also need to review the Rental agreements to see if you are responsible for supplying any notices to the renters once you take over the agreement such as where they now need to send the rent payments.
What is the amount of each units rent and security deposits held?

You should receive an accounting of the rents and security deposits from the seller in the form of a “rent roll”. The title company will use the rent roll to prorate the rents at close of escrow and credit the buyer any security deposits held by the seller at close of escrow.  Imagine a 7 unit property fully leased and you do not get the $800.00 per unit security deposit credited at close.  You have just left $5,600.00 on the table.

Moving on to the “Where”, this is easy… location, location, location. Remember this is a residential real estate investment so location is key. Another question of where is, where can you find a good deal on a multi unit property? This is where a real estate agent that specializes in multi unit properties would come in handy. AZREIA has a couple of great members and vendors that fit this bill so check around at the next meeting. If you prefer to try it on your own, check the REO market or if you are very adventurous watch the trustee sales.

As far as the “When”, you will have to answer that question on your own.  The market indicates now is the time to buy but only you know what is best for your portfolio and at what time line.

“Why” multi-unit? If you are looking to expand your investment portfolio and resume this is a great next step for the single family investor. All the same rules apply, right price, right property, right condition.  Be sure you are working with an agent and escrow officer that is experienced in the type of investing you are doing to help you limit your liability.

I hope you all had a happy and safe 4th of July holiday and that you have a great 2nd half of this prosperous New Year! Remember, Chicago Title is here to help with anything you need!