How to Invest in Multi-Family Homes

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Buying a home for two or more families requires investment savvy. Since the investment will require selling or renting to more than one family, you must take time to consider more details. Anyone who buys or rents your property will examine how you approached fixing up the homes and how this affects him or her. For example, if you use certain colors and design techniques in renovating a duplex or tri-plex, this will attract a certain clientele. Aim for the type of tenant you desire by remodeling or upgrading to please this target market.

Educate yourself about the types of multi-family homes available in your area. For example, learn how much row-houses built on the townhouse style sell for. Review real estate books to figure out which duplexes in your area are located in the best neighborhoods. Drive by multi-family dwellings nearby and look at their general appearance. Make a decision about which neighborhoods you desire to invest in. Never buy a home in a neighborhood that is going downhill.

Keep a notebook about homes you like. Ask a real estate agent or property owner to take you through some of your choices. Be prepared to experience a wide range of emotions. Homes that look great on the outside can look terrible inside. Homes that look rundown outside can have a lot of great features inside. Use logic in deciding which homes to buy, since making money on the investment is your goal. Accept the negative features of each home and figure out if you're willing to deal with those issues. If not, move on to the next choice.

Decide on two or three choices to seriously consider. Write down the pros and cons of each one, how much each requires in investment funding, the down payment for each and other factors. Know your long-term or short-term goal for each house. For example, you might decide to lease each unit to tenants for a few years. Another option is to fix up the house and sell each unit one by one to families.

Never risk more money than you can afford to lose. Try to build homes that you could easily sell for your initial investment, even if you do no work at all on the units. Never buy homes that are over-priced in the beginning. You may not recoup your initial investment, even if you do lots of upgrades. The best scenario is to buy a multi-family home that is under-priced by a minimum of $20,000 to $30,000, say experts at the National Association of Home Builders. Foreclosed duplexes and larger multi-family homes can often be acquired for $50,000 to $150,000 less than their collective value. Take care to inspect such a purchase, since hidden damage might absorb all of this equity in repair bills.

Buy one multi-family house and try to make money on it the first year. Gain practice in buying, fixing up and selling these homes. Establish a bigger line of credit at the bank, so you can buy two or three such homes at a time. Keep building your net worth as you buy homes. Your net worth is what you own in hard assets, such as houses and land, minus what you owe in total debts. If you own a home worth $500,000 and a multi-family home worth $500,000, with total mortgage debt of $600,000 and credit card debt of $10,000, your net worth is $390,000.