Insights: Multi-Unit Buildings as Investment Properties

  • Gregg Lynn
  • 07/12/21

Do you want to diversify your portfolio and invest in property in 2021? Residential Real Estate in San Francisco, from Russian Hill to Noe Valley and beyond, are ideal investment opportunities, and multi-family properties provide further investment stability and return. A real estate expert can provide the unnecessary guidance to navigate the intricate nuances of purchasing a multi-unit building. Below, find an overview, and tips for entering the real estate investment market. Luckily, we have you covered. Here’s everything you need to know about investing in multi-unit buildings in the San Francisco area.

The Community Opportunity to Purchase Act

In 2019, the city of San Francisco complicated the multi-family real estate purchasing process by enacting COPA, or the Community Opportunity to Purchase Act. This act states that qualified non-profits will have first dibs on buying multi-unit buildings in the city. When an owner makes the decision to sell his or her multi-family residential property, a group of organizations that the city has vetted will be the first alerted.  Buildings that qualify have to have at least three rental units or a vacant lot zoned for at least three rental units. In addition to getting a first look at these properties before they are listed to the general public, the qualified non-profits will also have the right to match any offer from a private buyer. Overall, the act  aims to increase the amount of affordable housing in the San Francisco area. 

So, what does this mean for those interested in buying buildings that qualify under COPA? It’s possible you will need to make higher offers to combat those made by a qualified non-profit. It also means you need to work with an experienced San Francisco real estate agent who can ensure all the rules of COPA are followed.

Why Purchase Multi-Unit Buildings as Investment Properties 

While COPA will undoubtedly make the process of buying multi-family real estate more complex, it certainly doesn’t mean you shouldn’t still explore the opportunity. Investing in multi-family housing has a number of benefits that are explained below.

For one, real estate is a long-term investment that remains stable through economic changes. Even during the pandemic, when the stock market dipped and other investments suffered, the real estate market boomed. No matter what is going on in the world, homes in the United States have appreciated year over year, making them one of the safest long-term investment options.

You can also qualify for owner-occupied financing. Do you plan to live in one of the units  in the building you buy? If your property has four or fewer units and you live in one of them, you can not only use your monthly cash flow to pay your mortgage, but you can usually also get a more favorable loan rate than if you were buying the property exclusively to rent out.

Additionally, multi-family building investments provide a steady, passive stream of income. Everyone knows that buying rental properties can provide a second stream of income, but when you own multi-family real estate, you get income from numerous sources with one purchase. If one of your units is empty, you can usually cover the monthly payments with the income from the other units, a clear advantage over owning a single-family rental home.

Multi-family properties are ideal for property management. If you buy a single-family property, you probably won’t generate enough income to hire a property management company and will end up doing most of the work yourself. A multi-family building , on the other hand, generates enough money to justify hiring a company and taking that burden off your shoulders.

These buildings  also offer tax benefits and scalability. When you buy a multi-family building, you can deduct the expenses of managing, maintaining, and repairing your property from the total taxable income you receive from renting it. Also, instead of having to go through the buying process several times when you purchase single-family homes, you can acquire multiple properties with one purchase when you buy a multi-family unit. This helps you grow your investment portfolio quickly.  

Tips for Investing in Multi-Family Units

Ready to move forward with buying a multi-family building? Here are some tips to increase your chances of success:

Choose the location carefully. With more tenants, you need to make sure you buy a property that is attractive to renters. Look for a building that is in a high-growth area, close to amenities like public transportation and grocery stores, and located in a well-maintained and safe neighborhood.
Consider how many units you want. A multi-family property has two or more units. Most San Francisco real estate experts suggest that those who are first-time investors focus on duplexes, triplexes, or four-plexes as they are the easiest to manage and have the least amount of risk. If you buy a duplex, your property will not fall under COPA, and you will not have to compete with non-profits during the bidding process.
Determine the potential income. Before you settle on the multi-unit building you want to invest in, figure out how much you are likely to make when you rent the property. A general guideline is to use the 50 percent rule. This states that you should spend 50 percent of your investment income on expenses rather than the mortgage. If you need help determining your possible income, talk with an experienced real estate agent for advice.
Determine who the seller is. Some multi-family units are owned by banks, some by a single person, and some by companies or corporations. Knowing who is selling the property will help you determine how best to deal with them and how high your offer should be. Talk with your agent and get as much information as possible about the seller before you move forward with your offer.

Ready to take the next step toward your financial goals and invest in multi-family Russian Hill real estate or condos for sale in Pacific Heights? Reach out to an experienced local real estate agent like Gregg Lynn to help you choose the right property and navigate the escrow process.  

 

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