Multi-family Kona properties are excellent investment options. Renting out a multi-family home instead of a single-family home protects you against
vacancy risks, and it also allows you to earn more per-unit than you would with other types of investments. You can also deliver maintenance more efficiently, and there’s more of an opportunity to earn consistent cash flow in addition to long-term ROI.
We work with a lot of owners and investors in Kona and throughout Hawaii who rent out multi-family properties, and we know that it can really help to build an investment portfolio. Make sure you can accurately analyze the return you’re earning on these rental homes.
Do Your Due Diligence on Multi-family Investments
Make sure you’re buying the right
multi-family property for your investment goals. Research its maintenance history, and have it inspected so you can be sure you’re buying something that’s in good condition. You don’t want to invest a lot of money getting it
ready for the rental market after you’ve purchased it.
If there are already tenants in place when you buy, make sure you review their lease agreements and their payment histories. The more information you have about the property you’re buying and the tenants in it, the better prepared you’ll be to analyze the money you’re earning from it.
It’s also important that you understand the local rental market. Determine what kind of rents you can expect, what the tenant pool will look like, and how long it will take you to place tenants in the units. Find out what vendors in the area are like, and how much they charge for standard maintenance and emergency repairs.
Financing a Multi-family Property
Your ROI also depends on the way you finance your investment. There are several options when it comes to finding the money you’ll need to buy a multi-family investment property. There are conventional loans, in which case you’ll get a standard mortgage from a bank or a credit union, and the loan will need to be paid off within 15 or 30 years, depending on your lender’s terms. Expect to put down at least 20 percent of the amount borrowed.
Portfolio loans are also a popular way to fund your multi-family purchase. You can finance between four and 10 properties at the same time, and your mortgage will be for anywhere between three and 30 years. These are nonconforming loans, so you’ll have a little more flexibility when it comes to loan terms and down payment amounts.
Understand Your CAP Rate to Analyze ROI
On your investment, the capitalization rate (CAP rate) represents your rate of return, and it’s based on the amount of income you expect the property to earn.
This figure is used to determine how much your investment is generating for you, and one of the most reliable ways to evaluate your ROI. The expected CAP rate also makes a difference when you’re choosing an investment. Don’t buy something that will cost you more than you’re earning. There are a few different ways to calculate your cap rate, but the most common equation is to look at the ratio between your net operating income and the property’s market value. Improving that net operating income (NOI) will not only increase your cash flow and result in a better cap rate; it will also increase the overall value of your property.
We love working with investors at all levels, and we’d be happy to answer any questions about multi-family properties and whether you’re earning what you should be.
Contact our team at Hawaiian Dream Properties.
