# Entrepreneur of the Week # Post 4 Entrepreneur of the Week - Post Number 4 My Multifamily Making in Real Estate I Started דוו

# Entrepreneur of the Week # Post 4 Entrepreneur of the Week - Post # 4 My Multifamily Real Estate Activity ...

Entrepreneur of the Week - Post # 4

Multifamily
I started my real estate practice in Single Family. After a good few years of doing this, I discovered the multifamily and I have been a prisoner ever since.
It's not a good or a bad thing, it's a risk management and hedging thing.
Proper disclosure - I still own several single-family properties, and enjoy them most of the time.
What is Motley-Family (Multi-family Residence)?
Classification of housing where multiple separate residential units are included in one building or several buildings in one complex.
The units can be side by side (singles cluster and / or Town House), or on top of each other (apartment building - more common). Unlike an apartment building that we recognize in Israel, each apartment has a separate property tax bill and a separate legal description (parcelsia), multifamily receives a single property tax for each complex and there is no parcel, meaning that the entire building / complex is basically one person with several housing units.
It is quite similar to the Turkish concept of 'savior' for those who know.
Multi-family must be sold as a whole complex and cannot be sold as separate units.
Of course, it is possible to go to the municipality / district and request a "parcel", subdivide the apartments into separate units, and then sell them as separate apartments / units (once the complex is divided into condos or apartments rather than multifamily).
It is important to note that not everywhere the municipality allows such a thing, there are places that the municipality encourages and there are places that the municipality is not willing to hear about it at all.
Multi-family benefits:
The great advantage of a multifamily complex is the number of units it consists of.
The more apartments there are, the more dispersion but on the other hand the more work.
In complexes of more than 100 housing units, it is also advisable to keep an in-house management company and save significantly on management fees (less than 100 units are generally less lucrative, of course there are exceptions).
The issue of financing is also advantageous, as banks and financing bodies prefer to fund a deal with a large number of single-family housing units, obviously because of the risk diversification issue.
How to estimate a multifamily market cap:
Although multifamily is used for private housing, it is actually defined as a commercial property.
Commercial property is usually (if not always) measured by its operating profit, ie:
Gross annual income> Less expenses and non-occupancy> Divisions of the investment amount (also depends on financing but we will not go into that at the moment).
For example: Gross $ 150K> Expenses and Unemployment $ 50K> Total purchase cost $ 1M (excluding financing) = 10% annual return.
Let's say we held the property for 5 years, and at that time it is acceptable to sell a multi-family property in this area at 7% cap, then our property will be worth $ 1,428,571 (divide net income $ 100K by 7%) while in another area it will be acceptable to sell at 8% % Cap, then the property will be worth $ 1,250,000.
Of course there are other such variables and others.
Pre-purchase check
So-called dueligence, and in Hebrew: proper disclosure.
Beyond examining the status of the property and performing insufficiently the same as any property before a purchase, multifamily also examines the state of income (asset valuation, remember?).
Looking for at least a year back, more can be asked for.
Check tenants' contracts, dates and commitments.
It is advisable to send an appraiser, in case of bank financing send.
Types of multifamily projects
There are multifamily post-improvement complexes or ones in need of minor renovation, these will usually be sold at or near market price. Of course there are opportunities to buy below market price but most often an asset that works will be sold close to market price.
More such deals would fit in with 'yield' deals and with good financing can work wonderfully.
Another type of transaction is called: Volio Ed (value added).
Multifamily whose occupancy rates are very low and / or in need of much improvement. These deals work similar to flip deals, no revenue at the beginning (or there is very little) but the improvement and raising the occupancy rates will significantly increase the value of the property.
Of course, these deals will be sold below the market price and sometimes very significantly, the mortgage is expected to be significantly higher (of course, after calculating the improvement costs and related).
Funding for such projects will usually be more difficult because the risk of the funding body is greater.
A possible way to use the financing is to purchase the property for cash, refinance it and then refinance it.
Like I wrote in a post yesterday, unfortunately I can't cover everything in one post.
Believe I gave little know-how and multifamily related concepts that helped those unfamiliar with understanding a little what multifamily is and how it works.
If I gave you one little tip - I won.

Successfully!



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