Over the years, residential architecture in Denver has developed to include a number of multi-unit homes. Really, the main purpose of these duplexes, triplexes, fourplexes, etc., is to be investment and rental properties. Investing in multi-unit homes, while profitable, can be different than investing in single family homes or apartment complexes. Here are some quick tips that I put together can help…
Tips for Investing in Multi-Unit Homes
- First, figure out how much rent you can charge for each unit of the multi-unit house. Look at each unit on its own to see the number of bedrooms and bathrooms they have.
- Then, pick up a For Rent Guide at a close-by store to see what apartments of that size are renting for in the area.For example, if are looking at investing in a duplex and both units have two bedrooms and one bathroom, see what two bedroom/one bath apartments in the same area are renting for.
- Then you can look at factors, such as upgrades, neighborhood differences, extra amenities that could be selling points for the duplex, etc. From here you should have a fairly good estimated rent price for each unit.
- Now, you can figure out your return on investment before you buy a multi-unit home.To do this, either figure the property’s Capitalization Rate (Cap) or its Gross Rent Multiplier (GRM)
To calculate the Cap Rate, divide the net annual income (so the total rent you expect to take in minus all your expenses for the maintenance and upkeep of the building) by the purchase price of the building. You may also want to account for vacancies, so to do that, simply multiply your annual net income by .95 before you subtract your expenses.
To calculate the GRM, divide the market value of the building by the Annual Gross Income.
Use the Cap Rate
Usually, investors use the Cap Rate to evaluate whether or not an investment is worth making, and they look for the Cap Rate to be at or above 10%.
Next, it’s good to check the building’s history. Even if the estimated Cap Rate looks good, checking the building’s history can give you a strong idea whether or not that Cap Rate will hold true.
To check the building’s history, ask the previous owner for the building’s Schedule E. This is the building’s income or income loss statement. It will show you the rental income and expenses and then the net income or loss per year.
It’s also a good idea to ask the previous owner the average amount of time tenants generally stay in the property. Every time someone moves out, it will cost you money in upgrades, repairs and time spent searching for new tenants.
Buying Multi-Unit Properties in Denver
As the rental market strengthens and rents continue to rise, purchasing a duplex, triplex or fourplex is a great investment opportunity.
The cost of the home is generally not substantially higher than a single family home, but there’s great added value of being able to collect rent from multiple units rather than one.
There are hundreds of these units in Denver, and renters seem to prefer them to large apartment complexes.
As a Denver and Boulder area real estate agent, I can help you find the best investment property to fit your scale and vision.
Whether you’re looking for a building at a lower market value that you want to work to fix up or looking for a quick turn over, I can help you find just that.
Let me know when you’re ready to start searching for your next investment venture.
Talk to me–
Brian MacMillan – REALTOR