Investing In Multi-Family Properties

Looking to take the plunge into real estate investing but not sure how to get started? Here is a great tip for beginners: One of the most affordable yet strategic ways to build wealth using real estate is to buy a small apartment building, live in one unit, and rent out the others.

This way, you get a feel for being a landlord; but you also minimize risk because your tenants are covering property expenses and your mortgage--or making a nice dent in your payment, at least. A perfect situation for first-time buyers and first-time investors alike! Plus, it’s often easier to get a loan on a multi-family unit than any other piece of real estate.

Some crucial points to consider when looking at the future of multi-family housing:

• More than 70 million Baby Boomers are heading towards retirement
• Increasingly, apartment complexes may be converted to retirement communities to keep pace with demand
• Millennials are buying homes at a lower rate than their counterparts in older generations
• In many communities, building new apartment units is becoming more expensive

Investing in rental property is not for the faint of heart, to be sure. However, adequate due diligence will go a long way towards keeping your investment protected and profitable.

The first component to your investment is to pick a great location (after all, this is real estate!). For long-term equity growth, a good location is key. Look for proximity to major roads, public transportation, good schools, and places to walk to. You also want to get inside the minds of your audience (the potential tenants) and predict what their priorities will be. If you are in a college town, for example, it's important to know how students think, the maximum distance they're willing to be from campus and the locations they consider desirable. The goal is to buy a property that will be in high demand.

Starting small is recommended. Begin with an affordable investment, like a single unit with in-law or bonus space; or a duplex. Because you're just getting started, stay away from properties that need significant repairs, since these could cause you to become overextended in your investment.

Crunch the numbers, and then double-check (and triple-check) them. Treat your rental property like its own business. Accurate estimates of the rental income and the costs associated with leasing will put you on a path to success. Betting on appreciation alone to increase value is not a good idea. Vacancy, turnover and eviction are realities of leasing any property, and a wise owner will factor these items into their decision.

Once the deal is done, choose tenants wisely. A final, critical piece of the puzzle is to decide whether or not you intend to manage the property yourself or hire a property manager. Applicants who are not qualified, late rent payments and other lease violations are facts of life, so if dealing with any of these scenarios makes you uncomfortable you may need to hire someone to do it for you.

We also recommend purchasing yourself a home warranty plan each year; so that you can make a claim whenever repairs and replacements are required including but not limited to appliances, plumbing, electrical, garage door, etc.

Real estate investment can be a rewarding, enjoyable way to grow wealth, but it shouldn’t be entered into lightly. We have helped numerous clients invest in properties that they are successfully renting out as short-term vacation rentals & long-term rentals, too. Real Estate is a powerful vehicle and can be the strongest asset in your retirement portfolio. 

*Always consult your local laws, regulations and guidelines to ensure that any investment you make takes place within the confines of established standards.

Marin Market Update for February 2016

There was so much anticipation for 2016, “another banner year ahead for real estate!” But, what happened? Not to worry, there's still time for the market to heat up, but man was it dead in January. Not by sheer numbers sake, we did end up selling 126 homes and condominiums in Marin (compared with 115 in January of 2015), but there was just a feeling that nothing was happening. Nothing on the market, nothing to sell, buyers not awake yet from their holiday slumber... what was going on? 

Well, maybe it was a bit of a hangover from 2015. Perhaps it was the small interest rate increase by the FED. Maybe it was the stock market scare that had stocks plunging to record drops. Maybe it was the El Nino storms. Who knows? But, rest assured, the heat is back on and the market is just NOW getting going for 2016. Some people say it's "after the Super Bowl" when everything starts happening. This year, and maybe because the Super Bowl is in our own backyard, I'd say that may definitely be true. There's an energy out there – a frenzy descending on the paltry amount of inventory that has shown itself in January. There's an excitement about what's "coming soon" and let me tell you, everybody is ready to go.

Buyers are pre-approved and ready to pounce as soon as they see the home they like (or kind of like). Sellers are still pushing the market, wondering just how far they can take it from a price standpoint. Savvy buyers say “don't take it too far, ‘cause we ain't stupid!"

While mortgage rates are at the lowest they have been in eight months, they will eventually rise, inventory will remain tight, rental rates may also rise making housing feel like a better option, and experts expect slower growth of housing values at about 6% this coming year. We are seeing Gen-X’ers moving into prime wage earning years and enjoying their newly improved financial situation, perhaps new job opportunities, relocation, or even seeking out better neighborhoods for their growing families. In Marin we have the older boomers approaching — or already in — retirement and seeking to downsize or lock in a lower cost of living. Together, these two generations will provide much of the suburban inventory that Millennials will start to acquire. Sellers may finally be ready to put their homes on the market after a few years of equity building, and the realization that with interest rates on the rise, buyers may have less ability to pay top dollar as the year progresses.

There was very little to report as far as stats go this month (only 208 homes in Marin on sale at this writing). Few properties are currently on the market, and some have been sitting for quite some time. Perhaps price is the issue, perhaps there are some hidden defects, or perhaps nobody has come up with the right offer to charm the sellers, but I am happy to show them to you, so call me if you have some interest! Perhaps the sellers will entertain a lower offer, and perhaps this is the diamond in the rough for which you’ve been looking.

Are you looking to buy or sell a home in Marin? Contact us to find out how The Costa Group can help.