Multi-family properties can form a core part of your real estate portfolio, providing a solid stream of cash flow for any investor. But are there any secrets to successful multi-family investments?
We recently had the pleasure of speaking with Jens Nielsen, a Multi-Family Housing investor and coach who manages his own $45 million portfolio of multi-family investments and provides one-on-one coaching for both real estate investment novices and seasoned investors.
Nielsen himself has invested in 700 units and wholly owns 75 units. His owned portfolio spans geographies that include New Mexico and Colorado (his home state), and his syndicated investments are in Phoenix, AZ; Atlanta, GA; and Erie, PA.
Key Strategies for Investing in Multi-Family Properties
From his wealth of experience, Nielsen generously offers these critical tips for multi-family real estate investors who are focused on multi-family properties.
- Understand the cycles. "Various markets go through various cycles," he states. Predicting the market is difficult. If you are looking for lower-risk investments, look for properties in areas that are going strong but still afford opportunities for growth and development. "A return within six to 12 months is ideal," he notes. "But if you have a higher risk tolerance, consider areas that might present a longer-term opportunity."
- Use technology to analyze markets and comps. Many cloud-based tools exist today that enable investors to research and assess high-growth and high-potential markets.
- Build the right relationships. When Nielsen invests in multi-family properties in a new market, he interviews multiple property management companies and seeks a local partner who can offer the right people and connections to handle leasing, repairs, renovations, and tenant communications. Especially when investing at a distance, you want to know that you're working with professionals who know the market and place a high value on success and service.
- Ensure that your occupancy is as close to 100% as possible. You need to be competitive in your market, have the right staff to handle leasing and tenant issues, offer amenities that appeal to the market, and provide clean, affordable units.
- Make upgrades that matter to your market. Look at competitive properties in your market and the features they offer. Nielsen notes that tenants are seeking upgraded baths and kitchens, and seem to prefer flooring rather than carpet. Even small improvements can result in significant boosts in appeal and occupancy.
Grow and Diversify Your Investment
With those foundational strategies in place, you're well positioned to invest and expand. "People often think too small and too local," says Nielsen. "Capital is always a challenge, so if you don't have a lot of money to invest, team up with other investors." He suggests that new investors start with as few as four investments and then slowly ramp up to more.
As you build your confidence and see returns you can expand. Some investors choose to buy properties near their homes, but some of the opportunities could be across the country. "Invest where the numbers make sense and live where you want to live."
Like investing in stocks, diversification can be important. If you have the capital and risk tolerance, build a portfolio of multi-family properties that span a range of geographies and have a range of potential for return on investment. For example, if you invest in an area that's still gentrifying or is highly speculative, balance it out with other properties in proven growth areas.
You don't need to have a real estate background to be a successful investor. Nielsen, for example, was an IT manager before he began investing in multi-family properties. The right research, partners, and analytics technologies (along with commitment and patience) can pay off in the long run. You'll be providing great housing options for consumers and a steady income stream for yourself. That philosophy is reflected in Nielsen's company tagline: "Helping people live their lives to the fullest through investing in real estate."