Breaking into Multifamily Investing
Multifamily investing offers significant potential for passive income for individuals interested in moving into the market. However, it is important to take the time to get to know the process, understand how multifamily investing works, and to build a team of professionals to provide the best information and support.
Too often potential investors simply jump into the deep end of multifamily investing without taking the necessary steps to ensure a full understanding of the process, the markets and the ability to distinguish a good property from a great multifamily investment opportunity.
It Starts With Education
Many experienced investors operating in the single-family investments arena assume the language and terms, the strategy/approach, and even the underwriting will be the same with multifamily investing.
The reality is these are very different types of investment opportunities. While there are some basic similarities, it is the difference between the two which will create the biggest problems for most investors. Take the time to read blogs, to watch some webinars and to read books on the topic of multifamily investing from successful investors and syndicators.
Make it a point to practice and sharpen your underwriting skills every day. Choose properties and complete a full evaluation on the value of the property as an exercise. Look at the market, consider the location, evaluate the market value and what you can reasonably expect as an acceptable ROI (or Cap rate). Don't forget to become comfortable with calculating numbers for repairs and renovations that will need to be done and the cost of those in the given market.
Consider Your Comfort Level
If you are used to single family investing, you have a better understanding of the work involved in the process. Most people, even experienced investors, work with teams of investment experts to provide information, support, advice, professional services and to then manage the property after the purchase.
It is essential to surround yourself with a team of trusted professionals offering a level of expertise and experience to match your comfort level with the process. In other words, a first-time multifamily investor will usually require the services of more experienced professionals than a multifamily investor with several investments in her or his portfolio.
Bringing in professionals from different specialization areas will also vary based on your knowledge and comfort level. Every multifamily investor should have teams consisting of attorneys, mortgage brokers, accountants, contractors, property managers and equity partners. Even if you plan to work with a syndicator, it is important to become informed and comfortable with all aspects of the evaluation of potential investment opportunities.
Finally, it is critical to develop a healthy perspective on multifamily investing. Starting smaller and building a foundation of successful investments is typically a common approach and also builds up a backing of passive income. Then, with long-term investment in mind, gradually build up to larger multifamily investments as your comfort level, and financial foundation grow.