Making an investment in property is a great way to grow your income and achieve financial freedom. Many people start out with single-family homes, but there are a lot of advantages to multifamily properties. They don’t require as much investment as bigger apartment complexes and don’t require as much management. Multi-family properties offer better cash flow and more return on investment in a single-family unit.
5 Tips for Investing in Multifamily Properties
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1. Evaluate the Time Commitment
When you purchase a rental property, your money is not the only thing that you’re going to end up investing. It’s also going to take a bit of your time, as well—unless you hire someone to manage it right from the get-go—but that’s a lot of trust to invest in someone this early on.
In some cases, you’re going to need to spruce up the property before it’s for tenants. If you plan on doing this yourself, you’re talking about a large outlay of time and effort. But even if you hire someone else to do it, you still have to vet contractors and keep up with the process until it’s done.
On the other hand, some properties, known as turnkey properties, can be rented out as soon as you sign on the dotted line: but be careful of a couple of things. First, whoever bought the property and fixed it up is making their money off of you, so you’re not going find a lot of great deals among turnkey properties. You also need to carefully consider the state of the property and whether it’s really been remodeled as advertised. Some unscrupulous flippers slap a few cosmetic changes onto a property and then try to sell it for as much as possible.
2. Pick Your Market Wisely
No matter how amazing a property might be, if it’s not in a good market, it’s not a good deal. Do some preliminary analysis to narrow down your market to five or six choices before you settle on one you think will work. Then it’s time to visit and see what things are like on the ground. Here’s what you’re looking for in your market research:
- Low unemployment
- Average population growth and density with plenty of people moving into the area
- Rents that are going up steadily
- Strong local economy
- Plenty of job opportunities in the area
- Local investment in infrastructure
3. Analyze Your Options
As you start looking at properties, it can feel a bit overwhelming. Either you start doing in-depth research on the spot, or you just keep floating around with a lot of possibilities but no way of knowing which ones to investigate more deeply.
The good news is that it only takes a few minutes to get an idea of whether a property is worth your time or not. There are six things you can find out with just a little research, and together they tell the story:
- The number of units and how many bedrooms each has
- The total income the property is bringing it
- The average rental rates for units of those sizes in that neighborhood
- The desirability of the neighborhood
- The seller
- A rough estimate of expenses if you put half your cash flow towards the mortgage
Once you have your quick analysis done, use various metric calculators to obtain a rough idea of the price that would make any property worth it to you. This allows you to either move on quickly or consider making an offer. As you practice, you’ll get very quick at making these kinds of estimates, especially in neighborhoods you know.
4. Go For A Visit
You’re only going to be able to find out so much by poking around online or asking for your realtor to look into it for you. If you really want to be serious about your investment, go take a look for yourself. You never know what you might find.
You might find that things look better on the inside than they do on the outside, and a little bit of sprucing up would allow you to charge more than you initially thought. You might even find units that have been decommissioned in order to make it easier to finance a property.
On the other hand, you might find that a place needs so many repairs that it’s just not worth your time. The point is you won’t know until you look.
5. Commit To The Process
The perfect property will never fall in your lap. You’re going to have to go out and find it—and that takes commitment. Once you own your rental property and set up a property manager, you don’t have to do much, and you’re ready to enjoy the steady influx of passive income. But to get to that point, you have to be willing to commit some serious time to find the right property, the right financing, and negotiate to seal the deal.
If you’re serious about moving into the multifamily property investment world, consider putting aside one hour a day to the job. It’s not that much when you consider it could be the springboard to complete financial freedom.
Get Started With Multifamily Properties
There are many different passive income streams one can create. The key to success when investing in multifamily properties is proper research, groundwork, and commitment. Although “passive income” is often thought of as an easy way to make money, it takes risk, action, and should always be treated like a business. Don’t wait! Get your start today.