A Guide to Investing in Multifamily Properties
Investing in multifamily comes with numerous advantages. Multifamily properties provide consistent, steady cash flow, are lower risk than other real estate investments, and generally have better-annualized returns. To keep it simple, the need for housing isn’t going anywhere, making multifamily a solid investment plan for anyone interested in commercial real estate.
So you want to invest in multifamily? Here is a quick guide to help make that process much more manageable.
Step 1: Decide on the Budget
Multifamily properties are an attractive investment attributed to the steady demand from tenants, and higher rental income. But there’s no denying that the initial expenses might be high. Prior to making the decision to purchase a multifamily property, analyze all the fees. Operating costs, unforeseen maintenance costs, property taxes, and insurance are some of the apparent costs. It is also always advised to overestimate expenses; this way, you will have a much larger cash reserve in the future.
Step 2: Locate an Attractive Multifamily Property
When deciding when and how to invest in a multifamily property, location is one of the most crucial factors to bear in mind. Look for a multifamily property in a neighborhood that would appeal to renters. Keep an eye out for communities that are growing economically, have solid education systems, are close to office metroplexes, and have the makings of places that will endure throughout time. A desirable location draws in more upscale tenants willing to pay for the privilege of residing in the property.
Current top 10 markets for multifamily real estate investing:
- Los Angeles, CA
- Seattle-Tacoma, WA
- Boston, MA
- Minneapolis-St. Paul, MN
- Oakland, CA
- San Jose, CA
- Portland, OR
- San Francisco, CA
- New York City, NY
- San Diego, CA
Step 3: Hire a Commercial Real Estate Agent
Real estate agents are the best resources for navigating the market. They have studied for this, taken and passed tests, trained under expert market leaders, and have gone through the entire process several times throughout their careers. A buyer should hire a hyper-focused agent specializing in the multifamily market because that agent will understand the market dynamics. Real estate agents can give investors quality market advice on whether a property is overpriced.
Step 4: Financing the Investment
Choosing a financing program and provider wisely is essential when purchasing a multifamily property. The best loan type for the investment relies on the multifamily property you decide to invest in, so it is advised to research all the available options. Capital markets is an additional financing option for a multifamily investment. By offering a market for securities, including both debt and equity, capital markets enable businesses to raise long-term funding. The capital markets provide a wide range of occasionally complex instruments that let banks and businesses generate cash while also hedging against risks.
The most widely used loans when investing in multifamily include:
- Conventional loans
- FHA loans
- VA loans
- Commercial loans
Step 5: Time to Make Your Offer
The real estate agent will be vital for this step in the buying process. Before your agent represents you in a meeting with the selling agent, deciding the maximum offer you’re willing to make – based on your budget and financing limits – is crucial. Once you’ve prepared your numbers, your agent will meet with the seller’s agent to discuss the terms of the sale. If your purchase offer for the apartment building is accepted, you will proceed. Other times you may have to go through a few rounds of renegotiating because counteroffers are frequently made.
Step 6: Close on the property
Once the seller agrees to the offer, it is time to close the deal. Final property inspections will take place here to ensure that everything discussed in the negotiation process has been honored. Once the seller signs the grant deed, the seller legally transfers property ownership to the buyer. This is when you will pay the down payment and sign the final paperwork.
