Real estate that generates stable income is a great way to grow wealth over time. Here are some fundamental considerations about investing in properties with multiple units that you can rent out.

Buy a Property Where You Can Live

Investing in property to rent out is one of the best ways to make your own living arrangements more affordable. Consider the possible upside of buying multifamily real estate that you can occupy.

As an example, picture living in a building with four units. The rental income that you generate from leasing out three apartments can pay for the entire cost of a mortgage and property taxes. In effect, your net cost for housing could be zero or you could generate income exceeding your total living expenses.

Screen Tenants Carefully

A multifamily real estate asset needs full occupancy in order to maximize your return on your investment. Any turnover can be costly, so you’d ideally like to choose tenants who can stay on as long as possible. It’s also imperative to avoid tenancies that can become problematic due to nonpayment issues or occupancy problems. 

A well-rounded screening process to secure successful tenancies can mitigate your risk exposure substantially. You should want to be checking credit, getting in touch with references, and conducting a criminal history search. When you’re reviewing the content of a criminal record search, open warrants and crimes involving financial dishonesty should be red flags. It is also advisable to verify applicants’ income prior to approving a tenancy. You can use a couple of months of recent pay stubs or have an employer verify a person’s employment status and salary.

Get Security Deposits

In general, it is a good practice to collect security deposits from your tenants. This can help to offset some of your potential risk in taking on new tenants. It can help to pay for unpaid rent or damage to the property at the conclusion of a tenancy. If you opt to collect a security deposit, make sure that a tenant pays it in full before commencing a lease. Otherwise, you may have a tough time collecting the funds at a later time. 

Make sure that you are fully aware of all applicable law involving security deposits in your jurisdiction. Failure to return a deposit in a timely manner could ultimately make you liable for three times the amount of the deposit.

Do extensive due diligence before making a multi-unit investment. Thorough research can help you understand all of your risk exposure and obligations as a landlord.