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Keys to Getting Started in Multifamily Apartment Investing

by Spencer Cullor on January 12, 2012 · 12 comments

  
multifamily apartments

“I want to start investing in apartment complexes. How do I get started?”

If that is a question you have asked yourself recently, you are not alone. It’s something I hear on a weekly basis from both new and experienced real estate investors. They all want to know the keys to get started in multifamily investing the right way.

If done correctly, investing in multifamily apartments can be one of the most rewarding and best ways to grow your net worth and increase your income. However, one of the most important things you need to do when getting started is avoid making big mistakes that can take you years to recover.

It is important to get started right.

Below are keys to getting starting in multifamily apartment investing.  You can start doing these things today to shorten your learning curve.

Educate Yourself

The most important thing you can do as an investor is educate yourself. Find out all you can about multifamily investments. Learn how they work. Learn how value is determined. At first it’s like learning a new language, but with a little practice it will become second nature. If you are serious about being a successful multifamily investor, it is important to build a strong foundation. That foundation should be built through your investment education.

Evaluate Properties Every Day

After you have educated yourself on the basics of the industry, including how to evaluate properties, you are ready to take the next step. One of the best ways to learn about commercial real estate is by actually evaluating as many properties as possible. Determine what they are worth. Evaluate the areas they are located in and what needs to be done to fix them up. Figure out what you would pay for them to get your desired return. My first year in the business, I personally evaluated over 100 investment opportunities, and what I learned was invaluable to my current investment career.

Start small, build a strong base, and grow

This is where my advice might differ from many of the gurus out there. We’ve all seen the excited investor run out of a seminar and start telling people how they are going to go out and buy a 150+ unit apartment complex without ever owning a single multifamily property. It does happen, yes, but that is definitely the exception to the rule.

Don’t get caught up in the numbers game. Start small, where you are comfortable, and grow as you learn the business. Investing is not a sprint, it’s a marathon. Build a strong foundation stepping up a little in size with each investment and you will grow your business the right way.

Getting a good investment education, evaluating properties every day, and starting small will help you get started in multifamily investing the right way. These steps will cut your learning curve dramatically and help you to avoid making big mistakes. Once you build a strong foundation, you will be on your way to building wealth and massive cash flow.

See you at the top!

Photo: Ben Ostrowsky

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{ 12 comments… read them below or add one }

Jared Gruber January 13, 2012 at 2:06 pm

Hi Spencer,

I would be interested to see you write a piece specifically on a) sourcing apartment building deals (because they are typically not easy finds on the MLS) and b) financing apartment complexes (because you typically can’t approach your neighborhood bank to handle this time of commercial financing).

Reply

Spencer Cullor January 13, 2012 at 3:56 pm

Thank you for your comments. I’d be happy to write about both of those topics. I know them well. Look for them in upcoming articles here.

Reply

Andrew Rauch April 18, 2012 at 10:09 am

Any suggestions for resources on accelerating the learning curve on multi-unit investments?

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Spencer Cullor April 22, 2012 at 2:17 pm

Andrew, there are many ways you can accelerate the learning curve. A few of the ones I used when getting started was finding a mentor, investing with someone experienced so I could learn while I earned, and reading a lot of books on the subject. I also went through a lot of properties and evaluated as many as possible. Several options are free while others cost.

If you really want to get started fast, I’d look for a a good mentor or consultant. They can help you narrow your focus and avoid some big pitfalls that most new investors fall into.

Let me know if I can be of any help and best of luck!

Reply

Charlie Epp November 12, 2012 at 7:41 pm

Its nice to see somebody point out the most important part of mufti-family Investing (ie getting an education). I personally contend before you get into apartment buildings you should run your own homes as rentals, to learn the management stuff, in the real world!

I also like the part about evaluating 100 properties before investing!

Reply

Spencer Cullor November 13, 2012 at 7:09 am

Thank you for your comments. I think you are “right on” with them. One of the hardest parts of getting started in anything is finding out all the things you don’t know. By evaluating many, many properties and starting small by learning the operations, you can really cut down on huge mistakes. It might take a little longer to get going, but will pay off in spades by doing it right.

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Kaylea March 23, 2013 at 5:13 pm

Very helpful information!
Do you think it is smarter for someone to purchase their first apartment complex, or build their first complex? I realize many factors play into this, (the market, financing, location, etc) but I was curious what your general opinion on the matter is.
Thank you!
~Kaylea

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Spencer Cullor March 23, 2013 at 6:06 pm

Kaylea, thank you for your comments. In my personal opinion I think it’s much safer to get started with existing complexes. The main reasons being that you have historical operating history to base your purchase price off of and there are so many unknowns when you build from scratch.

Reply

ERICA BERNAL November 19, 2013 at 2:52 pm

Hello,
Thank you for the great information. How would I be able to go about finding a mentor to help me get started? And how much money would be needed to start small?

-Erica

Reply

Spencer November 20, 2013 at 9:14 am

Erica, I’m glad you liked the article. People can start in multifamily investing at any financial level, although the more you have the easier it is. Most people start small and grow their business over time as their means increase. There are several mentors out there, it just depends on what you’re looking for. We do offer limited mentoring opportunities as we are full-time investors and only have a limited amount of time. If you would like more information on that, please check out our website and contact us. Let me know if we can answer any more of your questions. Spencer

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Larry Ball November 30, 2013 at 3:45 pm

1) Are all the properties typically listed on Loopnet.com? 2) I see “cap rate of 8.0%”. What does that mean? Is that return on investment and before or after management fees?

Thanks for your comments.

Reply

Spencer December 4, 2013 at 8:57 am

Hi Larry, thank you for your questions. You can find properties lots of ways including websites like loopnet, costar, etc. You can also find them through commercial real estate brokers, mailing campaigns, etc. I would definitely recommend talking to brokers in your area once you’re ready to start looking seriously.

A Cap Rate is simply how much return on your investment you should expect if you bought a property “all cash” without financing. It’s based on the net operating income of the income producing property. However, there is a lot that goes into it as not all cap rates are equal. We have a free report on our website that goes into detail on how to analyze the financials of an investment property. You should check it out.

Let me know if there is anything I can do to help. Spencer

Reply

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