10 Things to Consider When Investing in Multifamily Real Estate

Posted by Michael Miller on January 16, 2018

For some investors, multifamily properties represent the next level of their business. The higher price tag and amount of risk involved isn’t for everyone, of course, but for those ready to take the plunge, there can be big rewards.

If you are thinking of breaking into the multifamily market, here are 10 things to consider:

1. More income, more tenants. 

Investing in multifamilies means multiple streams of income under one roof, which is why so many investors look to multifamilies in the first place. Just remember: To keep those streams flowing, you’ll need a marketing plan for your property to keep vacancies low.

2 – Crunch the numbers.

It is vital that you do your due diligence when determining the value of your multifamily property. Yes, there will be more rent incoming, but there will also be expenses. Be sure to overestimate your costs and underestimate your income to see if you can make it work before buying a property.

3 – Evaluate the equity.

Your investment will create its own equity eventually, but it is even better to buy into a property that already has it. A motivated seller might be willing to get out of a property for less than full value, or you could buy a property that needs work at a discount.

4 – Location, location, location.

Ah yes, the cliché of real estate. But it’s even more important for you to consider as a multifamily buyer, particularly if you are banking on an up-and-coming neighborhood. If you hit a trend, you hit the jackpot. But remember—you can transform a property, but not an entire neighborhood.

5 – Consider the comps.

Like location, this is also a no-brainer. But there are just so many things to compare with multifamily units. You could blow would-be tenants with a kitchen upgrade, but if the unit doesn’t offer a terrace, roof deck, pool, or any other desirable amenity, they will move in somewhere else.

6 – Remember to factor in all units.

Multifamily units come with higher price tags, so you will need to be realistic about the cash flow of every unit. That means you’ll also need a plan to cover your costs if you’ve got vacancies.

7 – Appreciate the scale of economy.

Avoid multiple projects—and enjoy major discounts—by renovating all at once. You and your tenants will be better off when things aren’t in a constant state of flux.

8 – Hire a property manager.

More tenants naturally means more maintenance. Unless you plan to be a full-time landlord, you will likely want to move on to other investment opportunities. It makes sense to add a property manager to your payroll to keep things running smoothly, especially if you own an apartment building.

9 – Allow for a longer closing.

If you are flipping a multifamily home, know that they typically take longer to close. Be sure to figure this into your investment timeline.

10 – Wait for a good deal.

Of course, this is good advice for any investment deal. But multifamilies are commanding high price tags, so if you’re looking to crack the multifamily market, you might have to be patient to find the right opportunity. The good news is that with 5 Arch, you’ll have speed and assurance of funding often within one week.

There are always inherent risks in real estate, and more so with multifamilies. Still, when the timing and opportunities are right, they can bring big things to your investment portfolio.

Ready to add a multifamily property to your investment portfolio?

Apply for a loan with 5 Arch today!

See Comments