Going from residential to commercial multi family

[Kamil Kaczmarczyk]

Hi,

I want to get into the bigger multi families. I am located in northwest Chicago.  I currently own a single family. Was planning to get a 2-4 unit to ease into it but if I see a good deal on a 5+. I want to be prepared.   Any tips on buying my first 5+ property.

thanks 

[Benjamin Matthews]

1. @Kamil Kaczmarczyk
2. Research the Market:
3. • Familiarize yourself with the real estate market in Northwest Chicago (Chicago has very stringent tenant laws), specifically focusing on multi-family properties. Understand trends, rental demand, vacancy rates, and property values in different neighborhoods.
   • Keep an eye on the local market to identify potential opportunities and become familiar with the types of properties available.
4. Financing and Pre-Approval:
   • Meet with lenders or mortgage brokers to explore financing options for a 5+ unit property. Understand the loan requirements, down payment amount, interest rates, and any specific criteria for multi-family properties.
   • Get pre-approved for a mortgage to demonstrate your seriousness as a buyer and strengthen your negotiating position.
5. Build a Strong Network: 
   • Connect with local real estate agents specializing in multi-family properties. They can provide insights, access to listings, and assistance throughout the buying process.
   • Attend real estate networking events, join industry associations, and engage with other investors to expand your network and learn from experienced professionals.
6. Perform Thorough Due Diligence:
   • Conduct a comprehensive analysis of any potential property. Evaluate its financials, including income, expenses, and potential for value appreciation.
   • Assess the property's condition, consider any necessary repairs or renovations, and estimate associated costs.
   • Review leases, tenant history, and vacancy rates to understand the current and potential rental income.
7. Consider Property Management:
   • Evaluate the feasibility of managing a larger multi-family property or explore hiring a professional property management company. Managing a 5+ unit property requires more time, effort, and expertise than managing a single-family home or small multi-unit property.
8. Understand Regulations and Zoning:
   • Research local regulations, zoning ordinances, and any specific requirements for multi-family properties in the areas you're considering. Ensure compliance with legal obligations and understand any restrictions that may impact your investment plans.
9. Analyze Cash Flow and Return on Investment:
   • Calculate the potential cash flow and return on investment (ROI) for the property. Consider expenses like mortgage payments, property taxes, insurance, maintenance costs, and potential vacancies. Ensure the property's cash flow meets your investment goals.
10. Have a Contingency Plan: How can you exit if needed, 1031, etc. 
    • Plan for unexpected situations and have contingency funds set aside for repairs, maintenance, or potential income shortfalls during vacancies.
    • Consider alternative exit strategies, such as selling the property or refinancing, in case your investment plans change in the future.
11. Conduct Property Inspections:
    • Hire professional inspectors to assess the property's condition, including its structural integrity, electrical systems, plumbing, and any potential issues. Their findings will help you make an informed decision.
12. Seek Professional Advice:

• Consult with real estate attorneys, accountants, or other professionals experienced in multi-family property transactions. They can provide valuable guidance and ensure you comply with legal and financial requirements.

Remember, thorough research, due diligence, and careful financial analysis are key when investing in larger multi-family properties. It's important to make informed decisions and seek advice from professionals to maximize your chances of success. Good luck with your investment endeavors!