Buying a multi residential income property such as a duplex, triplex or fourplex is a different process than buying a single family home or condo. One of the major assets of these types of properties could be the renters that occupy the units. It is most desirable to purchase an income property that is currently occupied with quality tenants, paying current market value rents. This means that your new investment will be generating income to you the day you close escrow. The seller and the listing broker will want the selling process to have a minimal impact on these tenants. In some cases the tenants may not be aware that the property is up for sale.
Unlike purchasing a home that you will live in, viewing the interior of the income property is secondary and commonly takes place after there is an agreement to the purchase price and terms. In other words it is typical that you will need to make an offer based on what the seller has disclosed about the condition of the property, but subject to, or contingent upon, a later in-depth inspection of the property.
Instead you will first be examining the seller’s disclosures regarding income, operating expenses and the maintenance history of the income property. You will be looking at your potential return on investment and cash flow factors. You will also be using these factors when comparing one income property to another. Two measurements that are commonly used for comparing income properties are the capitalization (cap) rate and the gross rent multiplier (GRM). I’ll explain these a little later.
Upon careful examination of the financial factors you will come to a conclusion as to the maximum purchase price that makes business sense to you. With that knowledge, you are ready to make an offer and begin the negation process with the seller. If an acceptable agreement is reached you and the seller will have a purchase contract that is contingent upon your physical inspection(s) of the income property.
At this point you may and should hire professionals to inspect the various aspects of the property including foundation, roof, plumbing, electrical, heating, appliances, termites, water damage and so on. After the inspections you may choose to proceed with the purchase, terminate the purchase, request the seller to make repairs or renegotiate the purchase price.
