Bradley Ransome works as a real estate developer in downtown Raliegh, North Carolina. With his insight and expertise on the matter, Bradley Ransome explains why multi-family home real estate investing is the way to go.
A multi-family home is an excellent opportunity for anyone starting out with real estate investment. Bradley Ransome of Raliegh, NC explains that with multiple units in a single building, an investor can simply purchase the property and then make passive income by renting out individual sections to multiple families. However, multi-family properties come with their own set of risks and challenges that an investor could ignore by investing in single-family homes.
Bradley Ransome says that to make the most out of multi-family home real estate investments, property managers must take caution to quickly fill the units and maintain them in a way that their initial investment pays off in the long run. Brad Ransome takes a quick look at some of the advice that investors follow to earn a profit off multi-family homes.
Homes located in high-demand markets not only fill sooner but they're also valued more highly than homes located in low-demand regions. This helps investors lock in value and quickly make back their initial investment as renters move in, according to Bradley Ransome.
Never Leave Maintenance to the Last Minute
By purchasing and renting out multi-family homes, investors essentially act as landlords. It is therefore, their responsibility to take care of maintenance and repairs. The profit generated from the property should cover these repairs but remember, the quality and condition of the property directly correspond with the overall value of the homes.
Bradley Ransome says that by leaving maintenance to the last minute or contracting out to subpar repair services, multi-family home investors diminish the value of their investments. Instead, it's always in the investor's best interest to make repairs as soon as possible and upgrade the property whenever needed.
Consider Professional Management
Brad Ransome says that while some investors feel comfortable managing properties on their own, it's not always the best decision. If an investor lives far away from the property or cannot dedicate the time needed to properly care for the units, it's in their best interest to hire a professional property management company to care for their investment.
Not only does outsourcing the day-to-day requirements of management take the burden off the investor's shoulders, but it can also increase the overall value of the property. A professional management company will have the time and resources needed to properly take care of the units, which will, in turn, lead to fewer vacancies and happier tenants.
Most importantly, though, the investor is then free to pursue new properties and can develop a small real estate empire. As their revenue increases, that money can go back into upgrading the properties or diversifying into new types of real estate.
Calculate Capitalization Rate and Cash Flow
When it comes to multi-family homes, Bradley Ransome says that two of the most important calculations for investors to make are their capitalization rate and cash flow. The cap rate is the rate of return on the investment and cash flow is the amount of money left over after all expenses are paid.
To calculate the cap rate, divide the net operating income by the purchase price. For cash flow, subtract all expenses from the gross income. These calculations will give investors a clear idea of how profitable the property is and how much money they can expect to make (or lose) over time.
With this information at hand, investors can then prepare for future growth and allot a proportion of their profit to reinvest in the current properties. In time, these investments increase the value of the units and generate added profit.
Have a Contingency Plan
Even the best-laid plans can go wrong and, when it comes to real estate investing, things can go wrong very quickly. That's why it's important for all investors, especially those new to the game, to have a contingency plan. According to Brad Ransome, this plan should include what to do in the event of vacancies, late payments, or even a natural disaster.
Unlike stocks or bond investments, real estate is a physical asset and, if damaged, it loses its value. At the very least, investors should insure their properties to safeguard against fire damage, flooding, storms, or tornados, if located in tornado-prone areas. Only then can investors guarantee their initial investment.
The Bottom Line
Multi-family home real estate investing is a great way to make money but, like all investments, it comes with its own set of risks, states Bradley Ransome. By following the advice above, investors can minimize those risks and increase their chances for success. With careful planning, multi-family home real estate investors can transform their purchases into a real estate empire.
