Although, historically, owning investment real estate, is considered, a quality, comparatively – safe, means, it takes some knowledge, understanding, planning, and carefully, choosing the right/ appropriate character, to do so! After, more than 15 years, as a Real Estate Licensed Salesperson, in the State of New York, and, someone, who has, on several occasions, invested in residential rental similarities, I strongly, believe, it is important, and meaningful, for possible investors, to pay keen attention, to these 6 basic principles, about the realities, etc, of doing so, With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, these.
1. Down – payment, usually higher: When one purchases a multi – family house, unless he lives there, lenders consider it differently, from the perspective of how much, down – payment, is required, if using a mortgage, as a part of the buy. While, rules, and conditions, often,differ, the normal traditional mortgage, for a single – family house, is 20%, but, for a non – owner – occupied one, it is 25%.
2. Additional requirement/ expected income/ revenue/ cash flow: Lenders, usually, when offering mortgages, for a single – family, house, base their decisions, on, the appraised value, and a set of numbers, ratios, etc, believed to represent a borrower’s ability to provide to repay, etc. However, with multi – family scenarios, a meaningful requirement, is based on the expected revenues, from rents, expected income, and cash flow. This is done, to minimize the lender’s risks!
3. All the costs: Know all the costs of owning and operating the specific character, from the onset. These considerations should consider: owner’s responsibilities for real estate taxes, utilities, maintenance, repairs, revenues, cleaning between tenants, maintaining shared areas and/ or, grounds, etc. All of these expenses, should be factored into one’s decision to buy a specific character!
4. 6% rule: A smart, rule – of – thumb, I call, the 6% rule. This method the revenues (stated, conservatively), minus all costs of ownership (paid monthly or averaged, that way), is the Cash Flow. This method, unless/ until, the true, Cash Flow, is at the minimum, 6% positive!
5. The 75% occupancy guidance: When, calculating, expected revenues, take into consideration, vacancies will happen, and be prepared. consequently, after calculating the revenues, using market – rates – rents, reduce the number, to 75%, to explain this, contingency!
6. Ease/ need of renting: Consider the specific, real estate/ rental – housing market, and if, it is difficult, or challenging, to rent, when there are vacancies. Research, how long, on average, similar units, take to rent, in this geographic area!
Position yourself, to make the wisest real estate decisions, by considering, at the minimum, these 6 applicable factors, prior to investing in a specific character! Will you proceed, with the discipline, to be a wiser buyer/ investor?