15 Things to Know After Buying Your First Multi-Family Home

Multi-family homes typically range from two- to four-unit properties. They can be a great investment because they can produce reliable income from tenants if managed properly. And many people purchase them to rent them out while living in one unit, which is convenient.

If you've just purchased a multi-family home, you need to make sure you're ready to manage your investment effectively. Here are 15 things you need to know to do that.

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When you own a rental property -- even if it is just a duplex -- there are a lot of steps involved. These range from collecting rent to dealing with maintenance or financial issues that crop up.

If you don't want to handle these tasks yourself, you'll need to hire a property management company. This will, of course, cost money and eat into your profits. Alternatively, you could take care of managing the property on your own, but this takes time and knowledge. So, think through which approach is best for you.

ALSO READ: Real Estate Investing: Is Hiring a Property Manager a Huge Waste of Money?

When you own a multi-family home, you need to keep it in good repair and promptly respond when tenants say something is wrong. Fixing issues can cost money, though.

That's why it's so essential that you have money set aside to cover unexpected repair costs. If you have a savings account dedicated to problems with the home, you won't have to borrow when a tenant calls with news that something broke.

In most cases, you'll be responsible for maintaining common areas of the multi-family home. This typically means arranging for things like snow removal, lawn mowing, and gutter cleaning. If you expect your tenants to be responsible for these tasks, you have to spell that out up front. Otherwise, be sure you budget time and money to take care of them.

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If there are not already tenants living in the property when you buy it, you'll need to find renters to live in the space. This means developing a marketing strategy, deciding where to list the units for rent, and making sure you have attractive pictures of the space.

You should know that, depending on your market, you may be unable to find a tenant for all the units immediately. Be financially prepared for that to happen.

You don't want to rent the apartment to just anyone. You need to make sure potential tenants are responsible and likely to pay the bills and not cause other problems.

To do that, you'll need to do some checks on potential renters. You should check their credit report and references and even consider a more detailed background check to spot red flags.

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When you find tenants, you should generally make sure they put down a security deposit. This is a good idea even if you're renting to people you know. Things could go wrong in the home that you have to make right when your renters move out, and you don't want to be left without the funds to do so.

ALSO READ: 7 Costs to Consider Before Moving to a Different Apartment or Home Rental

It's crucial to have tenants sign a lease before moving into the space. Again, this is important even if you know the people you are renting to.

A lease agreement clarifies everyone's rights and responsibilities so you're all on the same page. And if something goes wrong, it will be required by the court to enforce your rights as a landlord.

Even when you conduct background checks and have a written lease, it's no guarantee everything will go smoothly. Some tenants may fall behind on the rent or violate the lease agreement in other ways.

When this happens, you need to be prepared for how you'll respond. Most likely, you will need to go through a formal eviction process if tenants aren't following the lease and you want them to leave.

ALSO READ: 5 Most Common Issues Landlords Run Into During Tenant Screenings

There are strict rules about what landlords can and cannot do. Some rules spell out what landlords must do for tenants, including providing a habitable place to live. You need to know the landlord-tenant laws that apply to multi-family property owners so you don't run afoul of it -- even if that means talking to a lawyer to get a basic introduction to the rules.

To maintain your property's value, you need to keep it updated. This can mean making regular improvements within the space -- especially each time you have tenant turnover. Budgeting for this can help ensure your space is always attractive to renters and you get the full benefit of property appreciation.

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Standard homeowners insurance is not enough when you have a multi-family property. It's important to make sure you have the right coverage in place. This can include insurance for the dwelling, general liability insurance, and business income coverage. An agent can help first-time multi-family property owners get the right protections.

ALSO READ: Best Landlord Insurance for 2022

Make sure you're prepared to cover property taxes once you own a multi-family home. Sometimes, lenders require you to pay these into an escrow account as part of your monthly mortgage payment. But if that's not the case, setting aside money throughout the year can help you be prepared for this large annual tax bill.

Real estate investing comes with many potential tax deductions. You may be able to deduct management expenses, insurance premiums, mortgage insurance, maintenance expenses, and more.

Be sure you take full advantage of savings opportunities. An accountant can help if you aren't sure what savings opportunities are available to you.

ALSO READ: What Are the Tax Benefits of Real Estate Investing?

Some states and cities have rent-control laws to prevent landlords from increasing costs too quickly for renters. Be sure you know the laws that apply to duplexes and other multi-family properties so you can account for these restrictions when estimating your investment income -- and when setting rents.

Finally, you need to be prepared for your multi-family home investment not to start producing a steady income immediately. You may have a period when you'll have costs to pay but no rent coming in, such as when you're getting the property ready to rent and finding tenants. It's a good idea to save up some extra money before buying so you're prepared to cover the bills until you start receiving rent.

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There's a lot to think about when you first become the owner of a multi-family home. By putting in the time and effort to learn the ins and outs of effectively managing this type of property, you can maximize the chances your investment will be successful. Doing so is well worth the effort because buying a multi-family property can come at a big cost.

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