If your portfolio is stuck in a rut, or you’re not seeing the type of returns you’d like with single-family properties, investing in multifamily real estate may be the trick to turning things around. Because multifamily buildings house multiple units under one roof, investors often see higher returns with less risk. 

There’s a lot to know before diving into this type of investing though. Look through the guide below to learn how to stay profitable when breaking into the world of multifamily properties.

Table of Contents

• 1. Know How To Analyze Multifamily Investment Opportunities 
• 2. Invest in Prime Locations
• 3. Evaluate Potential Costs
• 4. Hire the Right Property Management Company
• 5. Make Strategic Partnerships 
• How To Start Investing in Multifamily Real Estate
• How To Find Multifamily Properties for Sale

1. Know How To Analyze Multifamily Investment Opportunities

Several different calculations will enable you to analyze the benefits of various investment opportunities. By first understanding your own goals with investing, you can identify which calculations are most relevant for your situation. If you’re unsure which formulas will be most valuable for you, looking at the calculations for each will give you a comprehensive view of a multifamily investment opportunity’s potential profitability.

The formulas above are just one way for you to know how to value a multifamily property. Additional considerations include the property’s classification (residential or commercial property), any existing liens, and the number of units, among others listed below.

2. Invest in Prime Locations

No matter what’s happening in the housing market – location will always be one of the top things to consider before investing in multifamily real estate. If you can provide an enticing living space near schools, shopping centers, and parks, you’ll likely experience fewer vacancies. And when those vacancies do occur, you’ll have an easier time filling them with high-quality tenants. 

When investing in multifamily buildings, keep an eye out for the following near said investment: 

• Top rated schools 
• Parks
• Shopping centers
• Public transit 
• Medical centers
• Restaurants 
• Entertainment 
• Libraries

Additionally, you’ll want to ensure the investment is in a strong labor market. One way to analyze this is to review population growth year over year, as well as by looking at what types of companies are in the vicinity. Also consider the less appealing aspects of a neighborhood and how those may affect tenant turnover rates – is the property close to a noise-polluting airport, freeway, or train tracks? 

Finally, and perhaps most importantly, consider how safe the real estate units are. Whether your target market is young families, mid-career singles, retirees, or a mix of tenants in different stages of life, safety appeals to the masses. The safer your property and its neighborhood are, the better your investment will be.

3. Evaluate Potential Costs 

Every successful multifamily investment strategy contains an evaluation of the expenses associated with a potential investment property. Failing to review these costs can significantly reduce your projected ROI. Review the general costs you’ll likely encounter below:

• Repairs: You may decide to completely renovate the building or just touch up some paint. Whatever the case, factor these costs into your overall budget before purchasing a property. Be sure to also include any unforeseen expenses that may arise, such as broken water softeners or a leaking roof.
• Vacancies: At some point, you’ll likely have a vacancy or two. In these instances, what funds will you use to cover the mortgage and operating expenses until you find new tenants? 
• Interest from Financing: If you choose to finance multifamily property, including the monthly or yearly interest on your loan can give you a more accurate depiction of your total profit and loss. 
• Property Management Fees: It’s wise to use a property management company when investing in buildings with multiple units or that are located a distance from your place of residence. Before making your investment, shop around for the best management rates and include those in your cost projections

If you aren’t satisfied with your potential profits after weighing the costs and benefits of several different real estate units, it may be time to look for properties in a new location or consider building a new multifamily real estate development. Building vs buying has its own pros and cons, so be sure to thoroughly research the process before getting your feet wet.

How to Finance Multifamily Property

Multifamily properties are, by nature, more expensive to purchase than single-family investments. While not every multifamily investor will have to finance an investment opportunity with a loan, many choose to anyway as it can aid in maximizing profits. 

As a basic example, let’s say investor A and investor B both have $150,000 cash. Investor A decides to pay $150,000 cash to purchase a mixed-use building, while investor B decides to finance a similar property with a small balance commercial loan and only pays $30,000 for a down payment. Investor A now has all of her money tied up in one property, while investor B still has the funds to acquire additional properties. In the long term, investor B will likely acquire properties at a quicker rate and therefore generate passive income more rapidly. 

If you choose to finance your investment with a loan, partner with a trusted real estate lending company, such as Revolution Realty Capital. Having funded over $1 billion in direct capital loans and with over 40 years of experience, you’ll be on your way to maximizing profit in no time.