The Multi Unit As A Real Estate Investment – Some Things To Look Out For
Most real estate investors at one time or other think about a multi unit as a way to increase their rental income. There are big apartment buildings with many units, but most investors start out with a duplex or a triplex. A duplex or a triplex is a single dwelling that has two or three different units under one roof. These properties can come in many different floor plans. They can be side by side, Up and down, or a combination of both.(In the case of a three unit)
A great deal of two and three unit Investment properties on the market today are large houses that were at one time a single family home. This is usually accomplished by cutting a doorway at the bottom of a staircase and blocking off the original staircase from the downstairs unit. I have even seen these type of houses blocked off in the middle of the upstairs to make a third unit that is accessed through some form of fire escape type staircase. You have to be very careful when looking at these types of properties. Just because they are being rented out to two or three families does not mean that you are able to rent them out to three families. I found this out the hard way when I bought what I thought was a duplex. The city inspectors told me that I was no longer able to use the property as a duplex. It was no more than a week after I bought the property that a city inspector came to my door and told me it could not be used as a 2 unit. It turns out one of the neighbors called the city. For whatever reason they did not like a two unit in their neighborhood. I was able to rehab the property and sell it for a profit so all was not lost.
The most important thing that you have to look for in any multi unit property is that the utilities are separated. By this I mean 2 or 3 electrical meters and 2 or 3 gas meters. If you live in a cold weather climate with two furnaces it is a necessity to separate the gas bill. Same thing goes with two air conditioners in a southern climate. The problem I would have had with the large house that I was talking about earlier is that it only had on furnace. That means that I would have had to pay the gas bill every month. I would have no way of charging the gas bill to the tenants because there was no way to separate the expenses. The same thing applies to the electric bill. You could charge a extra utilities fee in the rent but you are at the mercy of the tenant using the thermostat. I have seen Separate electrical meters with only one furnace so you could let the tenants pay their own electric but you would still have to pay for the gas.
I would say that if you are looking into a multi unit I would stay away from a converted house. I would lean toward a true duplex or triplex that was zoned and set up to be run as separate units. Complete with separate utilities and furnaces or air conditioners. The cost of these units will tend to be higher but I feel that they are worth the price difference.
Two homes under one roof.
Ability to collect more rent than a single family.
When someone moves out you have another side producing cash flow.
One location to go to instead of two locations.
Tenants living close together. (Potential problems)
Can be high priced compared to return.
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