Why Multi-Family Dwelling Unit Calculations Are Not For the Beginner

If there was little more to the preparation of multi-family dwelling unit calculations than looking at the number of units present in any given piece of real estate and multiplying that by the current rental rate, the need for skilled investors would be null. As a matter of fact, any newbie with enough credit or ready investment cash burning a hole in her or his pocket could simply pick and choose multi-family property for sale based on the amount of cash flow they are wishing to generate, right? Wrong!

For starters, you need to remember that a multi-family unit falls under strict zoning regulations, and while a previous owner may have been grandfathered in when certain rules and regulations changed, the odds are good that this will not apply to the new owner of the property.

If you find a listing for multi-family homes at a steal, take a good look at the specifications of the property and their adherence to current codes: you may find that within the apartments one is less than 600 square feet in size. As more and more jurisdictions are adopting this to be the minimum size requirement, you may be forced to undo the somewhat capricious - and profitable - subdividing a previous property owner may have undertaken and thus your cash flow will take a predictable hit.

Multi-family dwelling unit calculations also need to be adjusted for current vacancies. Even as real estate ads time and again claim that the property in question is in such hot demand that it virtually rents itself, this may be an outdated claim and if you find that over the course of the years one of more units did remain vacant for more than one month out of six, you could seek to make up for that in rental payments. Where this is not an option, you will be the one left to make up for the missed influx of cash.

Other items worthy of consideration and inclusion in your multi-family dwelling unit calculations are the management costs, the legal fees associated - in the past and foreseeable future - with the ownership of this particular parcel of real estate, repairs that are either ongoing or will be upcoming soon, insurance payments, and regular maintenance fees. The latter is greatly affected by any special amenities you might have, such as tennis courts, spas, or even barbecue pits.

Interestingly, the fiscal health of the neighborhood is just as important as that of your multi-family investment property!

For example, are the multi-family homes foreclosure rates unduly high in your part of town? Is there a lot of competition in the multi-family housing market? Last but not least, will you have to undergo some ordinance mandated constructions, such as the observance of setbacks or frontage requirements in an effort to stave off fines or costly hearings?

Considering any and all of these incidents makes it clear why multi-family dwelling unit calculations are not for the beginner - unless, of course, she or he has the support and guidance of seasoned investors!