Building a Multi-Unit Residential Rentals - Research Paper Example

A Proposal of Building a Multi-Unit Residential Rentals Introduction Multi-unit residential rentals are housing that multiple separate housing units for residential housing for residential occupants are within one building, or several buildings s with one complex.Multi-unit residential rentals are unexpectedly doing well. Housing units in a building with five or more housing comprise about 25% of all the housing units constructed recently. The proposed view, therefore, will address the formerly Metro laundry building to be renovated to be as multi-unit residential rentals. The building is located on Agricola. The proposal includes the market demand for investment, valuation, financing and legal and risks. Statement of Problem The method of building residential was standard in 1970s and the mid-1980s. It was fueled by some of the second era development which encouraged by Reagan tax laws. The laws created conducive situations for the investment of real estate. The rate of construction of rental apartment collapsed in the recent past divested the idea that home is sure-fire. However, recently, multi-family construction has inclined because of more vibrant rental alternative now that is single-family homes. The rise in the number of multi-unit residential apartments is evidence that investment the residential is profitable. Market Multi-family is becoming very intense now. Seemingly, a significant shift might be experienced whereby most people will prefer to move to multi-family homes instead of the single-family homes, in five to ten years to come. Proprietors will be compelled to change the type of residential. It I very clear that that there is market demand for multi-family residential building. Besides the increasing love for staying in residential multi-family residential buildings, formerly Metro laundry building is located in a strategic position. It is located on Agricola in a transitioning neighborhood and lends itself very attractive retrofit into a mixed-use building. The building will be separated into sections. The ground floor will be allocated for an upscale café with the residential apartment located on the second floor. Making the building, a mixed-used building will be an excellent marketing strategy for tenant in the building, as most persons would always want to get some services near their area of residence. The building will provide them with a platform to enjoy the services sold on the ground floor. Valuation Valuation is the process of determining the market value of a property using various tools. Tools that can be I would use for assessment my property include sales comparison, cost, and income approach. Currently, the building is in a rough state but the estimated value after completion would be between $375,000 to $400,000.It is because the building would require major infrastructures such as windows, wiring, and plumbing. The cost of putting on these infrastructures would push the cost of the building to be that high. The estimated Reno/conversion cost is between $150,000 and $175,000.Construction facing would be available for this project at 65% LVR.In addition, the external environment of the building would also require a facelift to a phase 1 environment. It would contribute to the high cost of constructing the building. The purchase of the building is based on a cost of $575,000.The down payment before acquiring the building is at $202,250.00.The banks or any other financial institutions are also offering mortgage amounting to $373,500.00. With the repayment of the loan, the assumed rate is at 5% for five years at fixed compensation over twenty years with a monthly P&I 2436.00. With the cost of improving the standard of the house and its strategic position, the estimated rental revenue will be $3500-$4000 per month in the commercial competent rooms. On the upper level residential, that is two bedroom is expected to fetch approximately $1500.00 per month. Financing To renovate the building, I would source my finance from different sources. My primary source of capital will be a loan from the bank. The rates of the banking will also be a determining factor when choosing the bank to go and acquire. Compared to any other bank, the interest rate of Bank of America is quite favorable. It, therefore, would be a priority when choosing a bank to acquire a loan. Table showing Bank of America Interest Checking Amount Rate % APY %+ Less than $10,00 0.01 0.01 $10,000-$99,999 0.02 0.02 $100,00 and above 0.03 0.03 Source: https://www.bankofamerica.com/deposits/bank-account-interest-rates.go The money expected from the bank will not be to enough to complete the renovation of the building. I will borrow money from a director who provides loans. I will borrow money from the director issuing personal loans. However, their interest on return sometimes high, I will check on terms and conditions that are suitable and favorable for both the direct and client (me).The expected interest on the return of the loan would be $50,000.This interest would only work if I return the borrowed money within the stipulated time. Incase overdue with the loan repayment they the director would charge $5000 extra money on top of them said interest. Another source of capital where I would source finance for my business is through making strategic partnership. With the highest budget of renovation of building, it might not be quite easy sourcing the funds uncase the bank fails to give me the targeted amount. I would then get involved in a partnership with serious investors who are ready to invest in my business. I would do this by granting a fair pricing on the shares sold in the building .I would set fair shares on the building to attract more investors. The money collected from the bought shares would help me complete the renovation of the building in time. Another source of finance that I would source my capital is from the government assistance. Most often than the government assists the investor with loans and grants to complete the establishment of their investment. In case I would not be able to get enough capital to complete the renovation, then I would source for grants from the government to complete renovation of the building. The final source of finance where I would source my finance from is from my own saving. This would be my first source of finance when I start renovating the house. I have saved $50,000. I would get the money that I saved to initiate the building and renovation of the building. Ratios These strategies used to identify how well a business is performing. There are several ratios that I would use in my investment to keep in check on its performance. The ratios I would use are, Reliance on Revenue source This is calculated as Reliance on Revenue Source=Revenue source Total Revenue total Revenue I would use this ratio in the composition of revenue sources. Operating Self-Sufficiency Another ratio, which is very vital in calculation of the degree of the expenses, covered in the maintenance of the building. It is calculated as Business Revenue Total Expenses Legal and Risks Concerning the legal issues involved in my investment. A multi-unit residential rental is covered under the law of real estate and property law. The law covers an extensive area regulated by federal and state statutes as well as common law. Normally, the level of the risks associated with Multi-unit residential rentals investment is relatively small. The limited volatility is due to the stable development of supply and demand. However, a Multi-unit residential rentals investor can experience five types of risks. The first risk relates the national market. Conventionally, it has always been considered that a multi-unit residential rental investment as part of the real estate investment to be relatively risky. With the strict laws governing real estate investment, problems that were experienced in sections like in areas of supply and demand has become liquid and transparent. It has therefore stabilized real estate market. It has saved real estate investors as real estate investments is very sensitive and reacts quickly to any change in the economy. The protection of market risks now gives me an upper hand in investment of multi-unit residential estate. The second type of risk emanates from the location of the building. Most often than not, building acquires its characteristic by where it is located. Giving a definition of a quality of an area, however, is wholly dependent on several factors. Factors that can influence the location quality of a building considered by the tenants are surrounding buildings and construction project, building zone plans, connections to highways and public transportation. It is fundamental for an investor to consider all these variables before building a multi-unit residential rental in an area. In choosing the building for renovation and creating it a multi-unit residential apartment, I will consider all these variables. Based on the findings, it is evident that a local source was looking for the building to make it a new space for their store. The third type of risk is on the object quality. Most of the proprietors after building the estates, they tend to do very little in the maintenance of the building. However, property adjustment usually aims at satisfying the needs of the tenants. Tenants have the rights to stay in a place by choice, so if the needs are not fulfilled then they have an opportunity to leave the house. Based on my knowledge of object quality and on what satisfies the tenant, I would renovate the building to the satisfaction of clients to be able to attract tenants to the building. Most importantly try to meet their needs to keep them in the house. The fourth risk is an unsystematic risk, this typically occur in situations where the performance of may be two investments is not the same. In such cases, the effect of one loss of investment is either partially or fully neutralized by a better results achieved by other investments in the portfolio. Most of the investors with that kind of investment portfolio can quickly eliminate the risks. However, in my case have not diversified to be able to build such a portfolio. To have a success in the investment, I have to minimize the risks as much as possible to maximize on incomes on the investment. The final risk in a multi-unit residential rental is financing risk. This type of risk can be controlled as compared to market risk, which is very hard to control. Accustomasation is conducted according to the needs of the clients. Similarly, I would be able to change financing to meet the needs of my clients. Summary I would buy, renovate and change the building to a multi-unit residential rental. It is because a multi-unit residential rental is a rising type of investment, as most of the tenants now tend to like multi-unit residential rental more than single homes. It then very vivid that they are high demand for the houses in multi-unit residential rentals References Collis, J., & Hussey, R. (2013). Business research. Pan Macmillan. Read More