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Alternative Energy Specialists Affordable Housing
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"Real Estate Sales, GREEN Building Design, & Construction Services"
Are you interested in selling, buying, or building a multi family property in Connecticut?
Here Is What You Should Know About Multifamily Homes "First-time buyers may think of a small apartment building as a single-family residence and not pay attention to the buildings income," says Steve Schappert, President Connecticut Real Estate and Construction LLC. Here are some other important differences: 1. Multifamily buildings contain tenants. This observation may seem obvious, but buyers sometimes fail to understand the implications. People skills can be as important as contracting or financial skills when dealing with income producing property. Buyers should evaluate the existing tenants on the basis of their longevity in the building and rent payment history. Owners also need to understand the importance of properly screening prospective tenants. Buying, renovating and renting to the wrong tenants can destroy your investment. 2. Multifamily buildings are bought for investment purposes. Investors use two valuation models -- the "cap rate" and the "gross rent multiplier" -- to assess a building's income potential. The cap rate is the annual net operating income before taxes divided by the purchase price or present market value. "The cap rate shows the net income in proportion to the purchase price. If you bought a building for $400,000 and earned $40,000 in net income, the return on investment would be 10 percent," Schappert explains, and the cap rate would be 10. The "gross rent multiplier" is the purchase price or present market value divided by the gross operating income or total rents. 3. Multifamily buildings are sold by commercial real estate brokers. Some real estate practitioners are familiar with both residential and commercial property, but most specialize in one area or the other. Schappert says apartment building buyers should solicit the advice of an agent who specializes in this type of property. 4. Multifamily buildings have competition. Buyers should investigate local vacancy rates, rent control restrictions, the pace of new construction, employment levels and other marketplace factors. Rents tend to increase when construction of new multifamily housing is prohibitively costly and vacancy rates are low. Conversely, rents tend to decrease when new construction comes online and vacancy rates are high. 5. Multifamily mortgages are underwritten differently than single-family home loans. "Obtaining financing to purchase an income-producing property depends more on the property's ability to generate income than on the buyer's credit. People who finance these properties look almost exclusively at the property and its ability to service the debt. If the property can't service the debt, the buyer won't get a loan no matter how good his or her credit is," Schappert explains. We can help!
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