Why purchase a multifamily (USA) property?
Multifamily property - is there a secret to doing this? Buying a Multifamily property is no secret at all, except; that long-term ownership provides significant financial rewards.
Blogger: Mark Rooney, Investinus Group
Why do I state is there a secret? Because so few take advantage of the power of income compounding that is included in the rewards of long-term ownership.
In its simplest version, even if expenses keep pace with rents (rents usually rise 3 per cent per year, expenses tend to rise 3 per cent year after year with these assets) then still, over time, debt is reduced. After a period of time (say five or more years) when debt is refinanced at its current balance then cash flow increases.
Purchasing a multifamily is similar to purchasing a block of units/apartments in Australia. All tenants are under the same roof/address that you own. Although, here is the major difference in the USA multifamily property market at the moment the Cap rates or the Net rate as we call it here in Australia after all expenses is much higher and would more than pay for the loan or debt on the investment. Therefore, why wouldn’t you invest? It is similar to the single family homes in the USA where the return on investment provides enough revenue to cover all costs / expenses and leaves a nice income stream for the investor.
Below is a multifamily deal that I recently reviewed for your review:
13 unit (8,000 sq. ft.) $279,000 Stable B to B- area.
Unit mix - 11 one bedrooms ($460 per month), 2 two bedrooms ($475 per month, should be higher). Total gross rent of about $6,000 per month. Currently fully occupied.
There is a central laundry room with two sets of owned (not leased) coin op washers and dryers - estimating about $80 per month.
Annual Property taxes $8,600
Annual insurance $3,500
Management fee 7 per cent (I think we should always factor at least 8 per cent)
Annual Advertising $1,000
Water $240 per month ($2,880 per year)
Owner electricity $80 per month ($960 per year)
Lawn/Snow, etc. $1,550 per year
Legal $500 (rough estimate - many tenants are long-term and there have been no evictions in the past few years)
Maintenance $300 per unit per year (this is much higher than the current owner's financials)
Dumpster and trash removal $150 per month ($1,800 per year)
Reserves $250 per unit per year
With a 10 per cent vacancy rate assumption, I come up with NOI of about $33,000, which would be just shy of a 12 per cent cap rate.
About Mark Rooney
Investinus Group's Mark first found out about the advantages in the U.S real estate market in February 2002, whilst on a business trip to Canada and the U.S.A. The initial contacts made were able to assist with learning and studying the market place and how an Australian can invest into the U.S market safely and also have assurance that a team there can protect the asset.
For the next 4 years Mark researched the U.S real estate market and looked for opportunities to build further relationships with people. Over the next few years Mark gained an understanding of the various cities and what investment outcomes they provided a foreign investor.
In 2009 Mark was asked to assist others with purchasing property in the U.S.A. This was the initial beginnings of Investinus Group, whose focus is ensuring that their clients have a safe and secure investment in U.S. real estate.
The group aims to build strong relationships with their clients and the people who work with them, suppliers, property managers, attorneys, accountants and developers.
