Buying Your First Building for Your Housing Business
Strategically, making a long-term investment in a building for your housing business is a very deliberating business decision. However, for new or growing housing business you can take advantages of the residential exceptions. For example: a buyer can purchase a multifamily property with 2 up to 4-units and still not be required to down pay 25% because the buyer will use 1 of the apartments as a primary residence.
On average the asking price for a multifamily property in the Washington, DC area is $625,000.00. You may find some less than that. However, you will surely find
more above that because the ownership in this area is more businesslike than owning 2 to 4 single-family houses that you rent out individually. I hope you can understand the differences as easy as I will try to explain:
- 4 separate houses can be managed as 1 residence at 4 different addresses
- A 4-residence property must be managed as a business open to the public
- If it is 4-units, you will have 3 customers for your business. And,
- If it is 2-units you will have only one customer. Which is not as demanding as a 4-unit property.
Here are some of the steps you will need to perform during the conduct of your business from shopping to day-to-day managing the business. Your F.O.C.U.S. Consultation will uncover these and more important considerations.
Do perform a detailed and realistic evaluation of your projected cash flow or income resources. It is called projections because you are looking forward into the future from where you are financially. If you are relying of some sort stabilized compensation, see how much over your own personal living expenses you can afford to pledge to the undertaking. Most buyers who are still employed usually have a debt to income ratio of 41% for their living expenses and that's how they can afford to acquire a 2 to 4-units apartment building if they reside in one of the units.
Take account of your projections to determine the area location you are affording. If you have the required down payment for the financing program you are using plus reserves for the closing costs, you are planning to own and operate your housing business for 10 to 30 years. Your ValueAddedRealtor can find the right building available at an affordable price for you. Don't look for Feng Shui unless you are prepared to pay a very Feng Shui price. The value of your newly acquired housing business asset will greatly depend upon how much value you can improve into it so that you can charge more rent and get more stable tenants. Owning the building for your housing business is better than leasing it from the owner and subleasing to tenants. The benefits of owning includes the sum total fixed costs you can budget and prepare for in advance. Using a master-lease for the asset is subject to ever-increasing triple net (NNN) costs in commercial properties while you are fully capable of buying residentially as your home. Another reason for buying a multifamily property is the income from tenants. Since you are already affording the mortgage note on your income alone, f you manage the business we you can draw down that 30-year mortgage in 10 years ultimately having a refinancing position to buy another property to increase your housing business assets. Moreover, real estate appreciates over time so it's not the amount of properties you can buy but the better you appreciate it.
Get the help of your ValueAddedRealtor to locate the appropriate building you should buy for your housing business. Base your location on the density of the neighborhood, building operating cost and improvement needs. If you have experience in letting out real estate leases, your Realtor should guide you through
the process and your ValueAddedRealtor can give you management tips so you can get off to a cool and smooth running. Look at the location objectively. If there are limited parking spacing for the area and your selected property has some parking, evaluate the public transportation situation to see if you will increase the rents when you are the owner. That is just an example of turning limes into lemonade. Get the best from your ValueAddedRealtor.
Most home buyers just pay for a home inspector to look at their new purchase. Very few take advantage or the service. I urge you to attend even if it is just for information purposes because the seller warrants to make no repairs. Please take advantage of the professional inspection of the property. Ask how things are so you will have intimate knowledge of the building and how it operates. There are many rules-of-thumbs in construction these days but most likely the property was not built yesterday. Ask how things work because figuring them out with the inspector is a great way ensuring they are in good shape. The inspector won't be able to break open the walls to see what is behind but learning which of the 4 switches is for the lighting in the living room is very sensible. You will know what you can live with now while you plan substantial repairs and improvements.
- If you are still interested at this point, run down a detailed analysis of your financial projections to ensure your housing business plan is sound. Available funds after closing the acquisition should be enough reserves for paying the mortgage note for 6 months. Compute the costs of the mortgage payment, insurance and other expenses of operating the building against your present living expenses that would be included in the new note. Most utilities are the same for single-family house times the number of units in the property. So, you are not surprised after you purchase the property, do budget for a private garbage removal service. That is a gray area of concern like the water and sewer utilities. Most sellers are not declaring the expense in their disclosures. It may be applicable to the new owner as jurisdictions are requiring that more multi-family dwellings get private refuse haulers.
Those 3 steps should get you off and running in the growth direction. Do manage them well and deal with written leases with also subsequent written amendments. It is that simple. Landlords and tenants have created bigger courts than the criminal courts. When you are making progress onto another property, you may want to charter a limited liability company or a corporation to own the
properties. You can put the first property into the corporation/business entity so you can leverage financing for the subsequent properties. More advantages for that move include paying the overhead expenses for the business to the revenue of said business.
Never underestimate your #ValueAddedRealtor to help you shop for the best possible financing package for your building purchase. After you have established your business with your success with the first property, your business will get several perks. One of the perks is lowering the down-payment threshold for subsequent purchases. Mix the perks and business advantages together so you can propose development projects to your local Department of Housing and Community Development agency for tax credits, lower cost financing and development grants.
Building up housing business is the specialties for Rodwell Smith Complete the required facility inspections, obtain business insurance and close the deal. Move your company into the new building. If there is considerable extra office or floor space in the building you don't need, work with your real estate professional to lease out the remaining space. There are additional responsibilities involved in being a landlord, however the increased revenue from your housing business income can help you retire or expand your wealth more steadily than any other business..
Sorry we are experiencing system issues. Please try again.