Multifamily Can Be Lucrative, But New Investors Need a Defined Strategy to Be Successful
Investing in multifamily can be quite lucrative, if you make the right moves. Since the financial crisis and housing market crash of 2008, renting has become an increasingly popular housing choice for many. Plus, the last of the millennial generation has now graduated college and entered the workforce, creating a new source of potential tenants for apartment buildings.
To seasoned investors, multifamily is considered somewhat recession-proof. Businesses can close or relocate to new spaces; storefronts can start selling their product online, which most are having too, to compete with e-commerce & Amazon giants; but people will always need a place to live, giving multifamily a distinct advantage over other investment categories.
Although multifamily is getting more popular—and therefore, more competitive—the market is still ripe with good deals, but new investors still need to be diligent to make sure they're choosing the right properties or sponsor/syndicate.
Here are a few tips new investors can follow to ensure success.
1. Research the Market
When first getting into the multifamily space, it's tempting to look across the country for deals. While it can be fun looking at properties online, running the numbers, and calling the brokers to get more intel on the deal, there is a lot of data that you need to evaluate to truly get your head around a deal. The specific location of the property plays a major part in your evaluation parameters, along with many other factors.
Spend time getting to know the area before purchasing an investment. 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, which is why new investors should pick one or two markets to shop in first.
Get to know everything about the market and who is active there. Talk to the agents, managers, and principals in the area, either face to face if you're local, or over the phone. With insight, you will be able to learn which areas to target in that town. 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
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. However, multifamily often has so many moving parts that it takes a team to make the project successful.
Whatever you bring to the table, it's likely not enough to allow you to build a pipeline of deals without overextending yourself. You will need to set up a solid team to work alongside you and share responsibilities. For example, look for someone local to the deal who can be your person on the ground, a multi-market broker can be a great resource for you, or a team member with the credit or track record required to draw banks and investors to the deal, or someone with good analytical skills who will be able to run the financials to create a business plan to bring the property up in value.
3. Devise a Plan
Multifamily deals can often be for sale because they're 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, so 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—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 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.
If you would like more information, and learn more about passively investing in income producing, cash-flowing real estate, visit JP Capital Solutions.
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