4 tips for buying multifamily property in a new neighborhood
Investing in multifamily properties close to home has benefits. You know the local community well, and proximity makes management easier. However, you might find more opportunities in neighboring communities as the local economy, demographics and infrastructure evolve.
If you’re thinking about investing in a new neighborhood, keep these tips in mind.
1. Evaluate the local market
When you’re researching a new neighborhood, consider these questions:
- Who lives here (e.g., students, families, working-class households)?
- What are the crime rates in the area?
- Are there more renters or property owners?
- What are the occupancy, vacancy and rent rates in the area?
- Is the property in a flood zone?
- Are there building codes or renter laws worth knowing?
“To get to know a specific neighborhood, you can find all the information online and also by networking with local people as needed,” says Ben Gold, founder of Recommended Home Buyers, a real estate investment company in Philadelphia.
He suggests creating an account on real estate investing websites’ forums, some of which have local community pages. Along with asking fellow investors questions that will help you better understand the area, these forums can be good places to find referrals for contractors and maintenance professionals.
For a more in-depth look at the state of the rental market, including rent and vacancy rates, operating expenses and property ownership trends, it’s a good idea to tap reliable data providers.
Visiting municipal websites and contacting local town halls can give you insight into laws and regulations affecting rental properties. You can also read local news to learn what’s happening in commerce, construction, schools and other areas that might affect housing in the neighborhood you’re vetting.
If your investment strategy involves luxury, high-amenity properties, see what kinds of restaurants, retailers and other businesses the neighborhood you’re vetting has to offer.
“Independent stores and upscale chains are indicators that a neighborhood is growing or is already established,” says Martin Carreon, owner of Soco Wine Country Properties, a real estate brokerage based in Santa Rosa, California. “These companies represent a certain level of wealth, which indicates that the new neighborhood you’re buying into is secure and stable with future potential.”
2. Analyze property taxes
“You should consider the area’s average property taxes over a number of years when determining the competitive landscape of the neighborhood to figure out how much volatility has taken place,” says David Tully, a licensed real estate agent at eXp Realty who sells homes in northern Nevada.
Because property taxes typically rise over time, it’s important to determine whether the new neighborhood is established or up and coming.
“If you’re relocating to a more recent, growing community, potential taxes should also be taken into account,” Tully says.
To get a sense of an area’s tax trends, contact the town’s tax assessor and ask for the last 10 years of historical tax data. It’s a good idea to consult a tax adviser or accountant, too.
3. Work with a local agent
“If you’re not familiar with the area, it’s a good idea to work with a local real estate agent who knows the ins and outs of the neighborhood you’re interested in,” says Jennifer Spinelli, founder and CEO of Watson Buys, a Denver-based real estate investment company. “They can help you find the right property and navigate the purchasing process.”
To find an agent, Spinelli recommends asking friends, family and colleagues for referrals and reading online reviews to learn which agents are most popular in the area.
“Once you’ve found a few potential agents, interview them to find out more about their experience and expertise,” Spinelli says. “Ask them about their knowledge of the local area, specific questions about the neighborhood you’re considering, and what the average prices are for properties there. It’s also a good idea to ask how long they’ve been working in the area and whether they have any personal experience with the neighborhood.”
4. Make a plan for property management
If you end up buying property in a new area, you’ll have to figure out how to manage maintenance and potential rental issues. Unless you’re keen on commuting to the new area to handle everything yourself, consider enlisting the services of a property management company.
“Outsourcing may be a good option if you’re ready to pay for it and hope to avoid extra headaches,” Gold says.
At the same time, it’s not a requirement. Instead of hiring a property management company, Gold says you might be better off setting up your own network of local landscapers and home repair professionals, building your own team gradually.
He suggests connecting with like-minded multifamily owners online or asking your mortgage broker to introduce you to investors pursuing a similar strategy. Ask them how they’re managing their properties and see whom they recommend.
“Just start networking with people in the same boat, and you’ll be able to get the right solution for every possible situation,” Gold says.
Additionally, if you establish a strong relationship with your renters, you might consider offering them a discount to take care of some responsibilities around the property, like snow removal and garbage collection, Gold suggests.
By the editorial team at Story by J.P. Morgan