Evaluating a Multifamily Property? Don't forget these three things!
As an investor myself, and a licensed real estate broker, I get asked all the time what to look for when evaluating a multifamily deal. Here are just a few things that I have picked up in my property management career. These are the items that can be easily overlooked but should always be checked.
Utilities and Whose Responsible
Are there common areas or street lights? In some small multifamily properties, exterior lighting will be metered to the tenants. This means the tenants have full control on if the exterior lights are on or off for that property. That also means the cost of those lighting fixtures, in most cases is footed by the tenants. As a potential buyer and landlord, you need to know what utilities, if any, will be your responsibility. A good rule of thumb, is if something is shared by multiple tenants, then it will usually be at the landlords cost. An example would be a central hot water heater, that heats all the water for the building. Another example would be unattached street lights over a parking area. What I like to do, is count the number of electrical and water meters. If the building is say, a five plex, and the property has six water and power meters then more than likely the 6th meter will be the owners responsibility.
Rent Prices and Local Market Conditions!
This one should be obvious yet I am constantly amazed when property owners and potential buyers skip this step. In some cases, property owners have owned buildings for 20 and 30 years. This can lead to a huge gap between actual and potential rents. When evaluating a building for purchase, know both what rent prices are and what they can be. It may take two to five years of gradual increases to get rents prices where they should be, but it's necessity to know the direction a market is going.
So you know how much the previous landlord spent on repairs last year, but have you looked at the dates of the hot water heaters, air handlers and condition of the roof? Don't get left in the rain if the previous owner is selling because he knows the property is going to need a complete overhaul. This is doubly important when dealing with historic properties. Historic properties can be built on a crawlspace with piers and footers where thousands may need to be spent to keep them from becoming unlevel or having issues!
For Advice on Buying the Mobile or Baldwin County Market
If you would like us to help you locate or evaluate a multifamily deal, feel free to reach out and contact us. We are always happy to meet a potential client and start a relationship. Another great resource is the Bigger Pockets forums. Our number is 251.299.2100, just ask for Rameh Khazen for info on buying.