THE ISAACS TEAM
MULTIFAMILY INVESTMENT
The Isaacs Team | Compass
Steady income, equity build & economies of scale are just a few of the reasons investors love multifamily.
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NW DC
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What is ‘Multifamily’?
What does the term mean?
A property that has more than one unit.
In DC, smaller multifamily properties are rowhouses with rental basements, duplexes, triplexes and fourplexes are all considered residential multifamily.
Buildings with 5+ units are classified as “commercial real estate” and may require commercial financing, which is usually more expensive.
Why Multifamily?
Multifamily property is highly scalable.
Multifamily property can offer superior cash flow with only incremental added cost, and greater long-term equity build than other forms of property investment.
They are typically easier to finance, compound returns more quickly, and tend to benefit from economies of scale.
Multifamily investment can be as easy as owner-occupying a two-family property, residing in one unit and renting the other. Or purchasing a fourplex with an FHA loan, occuping one unit for a 12 month period, and renting the others. For investors wanting to build a sizeable portfolio, purchase of a 10+ unit apartment building is simpler and more efficient. To do so with individual properties, the investor would need to make multiple purchases, incurring transaction costs for each, and manage mutiple loans unless a blanket loan arrangement was utilized.
Financing Advantages
Although multifamily properties are usually more expensive than single family homes, it’s often easier to secure financing. This iis due to lender appreciation for consistent cash flow and income, even during periods of high inflation and rising interest rates. Lenders also consider multifamily properties more recession-proof.
Multifamily properties also offer tax benefits such as operating expense deductions, and depreciation. Read more about multifamily depreciation here.
What type of Multifamily properties can I Buy in DC?
TWO-FAMILY
Two-Family rowhouses or duplexes that offer separate legal residences.
TRIPLEX | FOURPLEX
Three and four unit properties.
Qualifies as ‘residential.’
MULTIFAMILY 5+
5+ units
Qualifies as ‘commercial.’
Tips From Pros
When purchasing a multifamily investment property, evaluate your OpEx:
Multifamily operating expenses are the costs involved in managing and maintaining your multifamily property:
- Renovation
- Maintenance
- Marketing
- Repairs
- Insurance
- Legal
are just a few. All money spent on your multifamily property is considered an operating expense. Put together a spreadsheet to calculate:
- Cost per unit
- Operating margin (expense ratio (OpEx – Income = OM)
Once you determine yourOpEx, you can calculate NOI.
NOI represents the property’s revenue after operating expenses are deducted. This is not a profit calculation. Profit is what’s left after all expenses are subtracted, from CapEx to debt and interest payments.
Before purchasing an investment property, evaluate your NOI:
NOI (net operating income), is used to determine the profitability of an income-generating property.
Start with Gross Operating Income (GOI). This includes rent, fees, etc. Subtract overhead and costs:
- Insurance premiums
- Utilities and services
- Property taxes
- Recurring maintenance/upkeep
- Repairs and replacements
- Personnel
NOI = Gross operating income – operating expenses
*Also consider non-recurring CapEx (capital expenditure) not included in NOI calculation. This could be a roof or HVAC system replacement, plumbing or electrical system upgrade.
NOI represents the property’s revenue after operating expenses are deducted. This is not a profit calculation. Profit is what’s left after all expenses are subtracted, from CapEx to debt and interest payments.
Some investors also evaluate potential properties using the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) metric to measure potential earnings.
EBITDA = Operating income + Depreciation + Amortization
BiggerPockets
Investopedia
Butterfly MX
Mashvisor
Roofstock
Rocket Mortgage
Multifamily Tools
Permitting
The multifamily permitting process differs from other types of investment property. Read more about multifamily permitting:
Financing
Multifamily projects typically require commercial financing. Research local options:
DC REAL ESTATE INVESTMENT
Start With The Basics
Whether you’re investing in DC real estatae as a side hustle or full-time business, understanding the local real estate market and fundamentals is key.
How We Help
- Guidance and education
- Off-market opportunities
- Skill, expertise and experience
Assembling A Team
Having a team of professionals in place will ease acquisition and managment of your investment portfolio.
Your Realtor, lenders, property manager, contractors and vendors functioning as a team can identify opportunities, speed transitions, address issues, and increase profitability.
Disclaimer
Our Investment content is posted for informational purposes only and should not be construed as investment, financial, legal, tax, or other advice. Seek specialized professional guidance before making investment decisions. Citations and sources on this site are not intended as endorsements.
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