Everyone makes New Year's resolutions. Most people start thinking about what to plan for the upcoming year even before it’s officially January. However, only a few actually follow through, and even fewer take stock of the progress they make. For those of you that made a New Year's resolution to invest in multifamily real estate and wanted a "gazillion" units to your name, it’s time you got started!
So, if you need a hand in attaining your multifamily investment targets, this article has you covered. If there’s one thing that we know for sure, it’s that "time waits for no one." So, what are you waiting for? Let's talk about how to start investing in multifamily real estate.
1. Identify Your Source Funding
The first step you need to take before finding a suitable multifamily investment is identifying the source of capital you will use to purchase the property. While most first-time investors use their savings, debt financing is another way to invest in multifamily real estate. People who utilize their savings leverage the equity to purchase more multifamily real estate properties over time. On the flip side, investors who want to play safe take loans from banks, pension funds, private lenders, or even insurance companies. This way, they get the capital required without leveraging their savings. However, they are required to give a fixed amount of return with interest to the debt financier.
In either case, it is critical to identify your funding source beforehand. Doing so will help you know how much capital you have and find the right multifamily real estate property accordingly.
2. Create a Multifamily Real Estate Investment Strategy
Once you have determined the source of investment, it's time to develop an investment strategy that works for you. Typically, there are two types of investing:
Passive Investing: If you want to generate passive income from your multifamily investment, then this is the way to go. Even though the income generation process might be a bit slow as you are not the only owner, passive income from multifamily real estate is consistent and has more tax advantages.
Active Investing: On the other hand, active multifamily real estate investing is when you are directly involved in the process, making you the sole owner of the property. So, whether it's a maintenance issue or a profit, everything comes and goes from your pocket.
3. Identify and Evaluate Potential Target Markets
Now that all the financial concerns are taken care of, it is time to find a potential multifamily real estate market. An easy way to do this is by simply looking for potential multifamily investment properties within your city. You can also Google "top multifamily real estate markets in the US" or read detailed surveys or reports from different companies about the predicted market. When evaluating a multifamily investment property, determine the following factors:
Population: Calculate the population growth for both the metropolitan statistical area and the target market city. Analyze the data for the last five years to determine multifamily real estate market profitability and expected revenue.
Jobs: The more diverse the job market (employment opportunities), the higher the chances of getting tenants for your multifamily real estate. Therefore, select an area with an employment rate of 20% or more. Never invest in a market having a high rate of unemployment.
Age: Moreover, have a look at the age data to determine the type of property that is high in demand. For example, if an area has more people aged between 25 and 35, then there is a high chance of putting their money in luxury apartments.
Supply and Demand: Learn about the building permits in the area and the vacancy rate over the 5 years. Make sure to opt for the multifamily real estate market with either a stagnant or a low vacancy rate.
4. Narrow Down to a Multifamily Real Estate with the Most Upside Potential
Once you have logged data for all potential multifamily real estate markets, analyze and compare the results to determine the best option. Last but not least, make sure to select the property that suits your investment criteria. Don't forget to conduct a professional property inspection before signing the deal.
Are you a seasoned investor or a newbie who wants to take your multifamily real estate investment to the next level by the end of the year? Follow the aforementioned step-by-step guide to get your hands on the most profitable multifamily investments in the market. Keep an eye out for an upcoming downloadable guide covering these points in more detail.