Investing in one or more multi-family properties can have huge advantages over investing in single-family homes and fixing and flipping. These include access to easier and better financing opportunities, the ability to quickly grow a rental property portfolio, and the opportunity to hire a property manager. An unsold or unrented single-family investment will create a monthly income drain, whereas multi-family investments provide a steady — and often significant — cash flow, even when some units are empty.
When you invest in a multi-family property:
- Thoroughly research the geography and property you're considering. Use technology to expedite and broaden your search, as well as get current and specific information. Look not only at the other properties in the area but also the potential of the neighborhood (schools, access to jobs, retail stores, crime rates, etc.). If you're a new investor, start with a small and carefully curated property.
- Develop a complete financial picture for your investment and the future potential of the neighborhood. Some of the factors you should consider are the employment rate in the area, the rate of new construction, the vacancy rate in the building you're considering, the average rent rate, and the average price per unit — before and after renovation. Be objective and rely on solid and current data sources.
- Assess the renovations and improvements that may be needed to optimize your rent potential. Look at comparable buildings in the area and get a clear sense of how to best compete for market share.
- Secure funding from a reputable and appropriate lender. Sometimes securing a loan for a multi-family real estate investment is easier than funding other types of projects. Lenders see the potential of a steady income stream from multi-unit properties. Choosing the right lender is important and can save you in time and fees. Bank loans, private loans, and equity investors are all options.
- Ensure you have the right property management resources in place. You must be thoroughly prepared to deal with the maintenance of common areas, individual tenant issues, and critical ongoing needs like rent collection, renewals, and (unfortunately) evictions. Many multi-property owners choose to outsource to professional management companies. Selecting the right one can save you time, money, and stress. Technology can also streamline building management. Put the right systems in place to automate maintenance requests, rent collection, vacancy tracking, etc.
- Use a tenant screening service to ensure the people you're renting to will pay on time and be good neighbors.
- Diversify and expand your real estate investment. As you become more confident in your real estate management skills and capable of owning and managing multi-unit properties, you may choose to expand your portfolio. Investing in different high-potential geographies or neighborhoods can be a great strategy to diversify your investment, but take into account the challenges of property management in different locales.
If you are interested in investing in multi-family properties but don't want the full responsibility of managing properties, seek out a REIT (real estate investment trust) that focuses on multi-family buildings. You'll reap the benefits of expert decision-making and a steady income but you'll be sharing the wealth with other savvy investors.