What to Know Before Purchasing a Multi-Property Unit


If you are looking to buy an investment property, a multi-property unit is a great option. In fact, it is one of the most sought-after forms of investment real estate. One of the reasons multi-property units are so popular is because they can bring in revenue and reduce vacancy rates. However, purchasing a multi-property unit isn’t like buying a single-family home – there are many more variables and stricter requirements. As a result, it can be a difficult process to navigate. Here are a few quick tips to help get you started:

Know the property

It is important to thoroughly vet the unit and its history when you are examining a prospective property. Ask to see the financial statements, including the income and expense reports for the past 10 years, the current leases, proof of rental payments, an up-to-date list of building repairs, and the classification of the property (i.e. A, B, C, or D class). It is valuable to know how much it costs to operate and maintain the building. You should also get a sense of what you can expect the vacancy rate to be for the property. This will help you gain a better idea about your potential return on investment. It is also important that you know what kind of tenants are currently occupying the units. Do they pay their rent in a timely manner? Do they take care of their unit? You should also talk to the tenants directly to get honest feedback about the building's condition and potential problems, says Brian Davis, a real estate investor and Co-Founder at SparkRental.com.

Hire the right professionals

Buying a multi-property unit is a big investment, which makes it important to hire the right professionals. It is very helpful to have an experienced broker, attorney, and lender at your disposal when purchasing a multi-property unit, regardless of whether it is your first or seventh property. According to Lee Kiser, Managing Broker of Kiser Group in Chicago, “These professionals can guide you through local practices and customs, and help you determine the most important items to review during due diligence."

Consider the cost

As you look at potential properties, you should consider the total cost of maintenance and the amount of money it will take to operate the building, in addition to the costs associated with purchasing the building. For example, do you have the time and resources it takes to manage the property, or will you need to hire a building manager? How much of a vacancy rate can you withstand? Are you prepared for unexpected market declines? You should keep an ample amount of cash on reserve to plan for the unforeseen. It is best to expect the unexpected when it comes to owning a property with multiple units. Corey Vandenberg, a Mortgage Banker in Lafayette, Indiana advises not to assume the property will always be fully occupied or that tenants will pay consistently.

The down payment requirement is something else to consider as you look at multi-property units. For example, if you are looking to secure a conventional loan on a 2-unit property, you will need to make a down payment that is at least 15 percent of the purchase price. For a building that is 3 or 4 units, you must have at least a 20 percent down payment. However, if you choose to live in one of those units, you may qualify for owner-occupied financing. This allows the buyer to put less money down and reduce mortgage costs on a home.

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