Guide: Everything You Need to Know About Purchasing a Multi-family Townhouse and Renting it Out
Are you an investor considering investing in a townhouse and becoming a landlord in New York City? If so, this guide is for you.
While purchasing an investment property can sometimes be a complicated process, it doesn’t have to be. If you have the right team on your side, coupled with a basic understanding of the process, you can breeze through the transaction and arrive on the other side of the closing table, owning a lucrative multi-family townhouse. Below we will briefly discuss the most important things you should know about purchasing a multi-family townhouse and renting it out in New York City.
First, Double Check the Numbers
When you initially considering purchasing a multi-family investment property, the first thing you should do is perform the appropriate investment calculations. Particularly, you should confirm that the return on investment (ROI) is what you are looking for based on your current financial situation. An acceptable ROI will vary from owner to owner as a lot of different factors come into play. Specifically, whether or not you own other properties or if this will be your first investment property may determine your risk level and an acceptable ROI.
Additionally, you should likewise calculate the Cap Rate for the property, which is defined as the yearly rate of return. You can arrive at this figure by simply dividing the net rent by the total price of the property.
Lastly, it is important to compare the value of the other properties in your desired neighborhood. This will give you a sense of the actual value of the property that you have chosen to purchase.
Location. Location, Location
Another thing that is almost equally as important as the investment calculations is the location of the subject property. Typically, a location is considered either developing or developed. While the location shouldn’t be the only factor that you consider, it is still very important when assessing the property’s potential appreciation over the next 5 to 10 years. Notably, purchasing a property in a developing neighborhood is typically a good decision because the property value has yet to peak. Overall, you should focus on becoming an expert in the neighborhood that you are targeting.
Generally, when choosing a neighborhood to purchase an investment property, the best thing to do is look for the property that offers the best opportunity. Neighborhoods located near the accessible transportation attract a good amount of renters. Likewise, neighborhoods that are full of amenities such as supermarkets, restaurants, banks, and other services are very attractive to potential renters.
Consider the Layout of the Property
Another thing to keep in mind when purchasing an investment property is that this property is not for you but rather for potential tenants. As such, the property layout must make sense to attract the largest pool of potential tenants. Additionally, the property should feature amenities such as ample storage space, bike racks and laundry.
Conduct a Thorough Property Inspection
When it comes to assessing the condition of the property, it is important to have an experienced team around you. Specifically, it is important to have the right inspectors, architects, and other experts who can provide you with sound advice about the condition of the property. It is important to remember that you have to comply with city rules and regulations when ensuring that your property is up to code. Overall, the end goal is to get a realistic estimate of the cost you will incur when or if you decide to improve the property.
Don’t Ignore Major Red Flags
In general, you should stay away from properties that have structural damage; this is especially true if this is your first investment property. Structural damage is often found after a general inspection. If a general inspection suggests structural problems, a structural engineer should be hired to assess the property.
Likewise, environmental concerns can be a major red flag for an investment property. Environmental concerns can include the fact that the property is located in a designated flood zone.
Another red flag to consider is whether or not the property is an SRO as it might create issues with renovation and obtaining a Certificate of Occupancy. Click here to learn more.
In general, if you have a healthy capital and budget to renovate an investment property, then you may not be as turned off by these red flags. However, if this is your first investment property, and you need to be conservative with your budget, then purchasing a property that has structural or environmental concerns may not be your best option.
The best way to set the rent for your perspective property is to study the rental activity in the neighborhood. In other words, you want to know what your neighbors are charging their tenants and compare your property. You should realistically assess whether your building as more amenities or less, which would warrant an increase or decrease in rent, respectively. Additionally, you can always get the property appraised. The report should mention the average rent collectible for the property.
The Responsibility of Being a Landlord
Realistically being a landlord is no easy feat. Instead, it is a major responsibility for most investors. Notably, you have to be concerned about the property itself as well as the safety of your tenants. Likewise, you must be prepared to deal with emergency situations and address them immediately to ensure that your property remains habitable and does not run afoul of New York City laws, rules, and regulations. This means that you must be prepared or have a system in place to deal with the 3 AM phone call that your building is flooding. To help address these types of issues, it is important to have a good relationship with contractors that can address emergency situations immediately. It cannot be overstated the importance of having a good electrician, plumber, or handyman on your team. Being a landlord is typically tougher for smaller landlords who do not have the monetary reserve to deal with unexpected repairs to the property. With that being said, it is quite important to consider your financial reserve when selecting an investment property and taking on the role of a New York City Landlord.
If being a landlord is not something that you are interested in, and you would rather take on the role of a passive investor, there are several property management firms throughout the City that will handle the day-to-day management of your property for a fee.
Schedule a call with me here if you have any interest in obtaining a complimentary valuation for your home or buyer consultation.
Authored by: Stanley Montfort
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