You might be wondering, “How rewarding is multifamily investing?” or “How do I start investing in the Multifamily market?” Investing in multifamily can be very rewarding if you devise the right plan to make the property work for you. To a seasoned investor such as myself, multifamily is to a large degree considered recession proof; simply put, people will always need a place to live.
While businesses have options to close or relocate, and storefronts the option to start selling online, families don’t have that same luxury and will continue to need a place to stay, giving multifamily properties a distinct advantage over other investment categories. From someone who has invested in multifamily for many years now, here are a few tips new investors can follow to ensure success.
Since the housing market crash of 2008, renting has been an increasingly popular choice for many people. While multifamily continues to be more and more popular amongst investors, the market always has very good deals. The problems arise when investors jump into a purchase without diligently researching to choose the right property.
1. Research the Market
When looking into the multifamily space, looking online for across the country properties or searching for local deals may cross your mind, but there is much more that needs to be evaluated to understand the investment. Many factors play a major part in the evaluation of the property, but one of the biggest is the location of the property.
Spending time in the area before purchasing an investment property is very insightful and will give a better sense of that market.
Who are the major employers? Is the overall population increasing or decreasing, and why? Why do people want to live in that town? What do other landlords do to attract tenants? Who are the leading management companies in the area?
There are many questions that come up when getting to know a new market, so being strategic and learning about one or two markets is a great start.
Get to know as much as you can about the market including who is active there by speaking to managers, agents, and principals face to face if available. A business plan to bring a specific property to full optimization will become evident as you get to know everything about the area where it’s located.
2. Build a Team
While many investors in smaller real estate deals such as single-family homes may be able to pull off the majority of the activities to make their project profitable on their own, multifamily often has so many moving parts that it takes a team to successfully complete the project.
Regardless of what you bring to the table, it’s not likely that you will build a pipeline of deals without overextending yourself. You will need to set up a solid team to work alongside you and share responsibilities. Find someone who is a team member with the track record required to draw investors to the deal or someone who will be able to create a business plan to bring the property up in value.
3. Devise a Plan
Occasionally, multifamily deals are for sale because they’re either not generating a lot of income, the asking price is very high compared to the current income, or the property won’t have an immediate return on investment; these properties will need a realignment of their operational strategy to make them profitable.
The key to making money in multifamily is to figure out what’s missing from the property’s profit equation. The questions you must ask are, what can be done to reduce expenses or bring its revenue to the next level? Once you find that missing link, you should develop and implement a full business plan around it.
Multifamily real estate is a great investment for new investors who choose their first markets carefully, build a trustworthy team around them, and stick to a plan in evaluating and managing deals.