An owner-occupied investment property is a multi-unit building where the investor resides in one of the units. I’ve worked with many owner-occupier investors and generally speaking, they are also first-time homebuyers. They are are looking for a property that offers an the unique opportunity to greatly reduce monthly mortgage payments by securing rental income to offset the cost of their loan. While living in a single-family dwelling, the household is solely responsible for making on time payments. However, by residing in a multi-unit building, the cost of the building could be allotted between multiple parties, thus greatly reducing the financial cost. Additionally, by gaining this hands-on experience, an investor could also gain invaluable exposure to multifamily investing.
How to find a smaller investment property for sale
There are many different resources to search for available listings. For instance, the MLS, LoopNet, and Crexi offer thousands of investment options. Some new investors may also find it beneficial to work with a subject area expert to gain experienced insight aka a multifamily broker or resimercial broker. There are certainly no shortage of real estate firms with knowledgeable experts. It’s important that the professional has experience with both commercial real estate and investment clients.
How to evaluate the investment potential of the property
One “tell-all” commonly used to give buyers an idea of the returns an investment presents is called a cap rate. Essentially, this is determined by dividing your net operating income by the property’s market value, which will give you a percentage. Generally, the higher the percentage, the higher the return on the investment. Before purchasing a property, investors should know the rate of return they will need.
Who is needed in the transaction?
There are many people to assist with the real estate transaction.
Lender: It’s important to start with finding a good lender to make sure you’re financially qualified and to formulate a budget based off your loan amount. It’s important to use somebody local, as rates and knowledge of the area tend to vary from county to county and even neighborhood to neighborhood in some cases. This is also compounded if you’re an out of state investor.
Attorney: Another important contact to have is an attorney. While some may believe this would be an easy expense to cut out, it’s important to have somebody who knows the logistics of the legality involved in the transaction to ensure you are as protected as possible. To name a few things here, this could include pulling titles to make sure its a “clear of title” building, to get title insurance to protect you if not, assist in the review of leases and lease history, and other nuances involved in the deal.
Property Manager: If the building has say four or more units or the investor does not want the sole responsibility of running a new building, a property manager can help with daily operations. This could include rent collections, billing, maintenance, and lease applications. It’s essential to hire somebody familiar with the area to ensure the most relevant knowledge is applied.
Broker: Working with a multifamily broker that is familiar with the area and that has a proven track record is also important to getting the deal done. Brokers can also help introduce the investor to other reputable parties needed.
How to make a competitive offer
It’s important to show a seller that the investor is a qualified and capable buyer. A few simple things that can be done to prove this providing proof of funds for the down payment, securing a loan with a local lender, and being able to articulate market area knowledge.
Purchasing your first investment property can seem daunting but having the right team in place will help streamline the process. If you are ready to make the next step, give me a call or email me to see what inventory is in the market.
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