In the real estate investing world, many investors want to know if they should invest in real estate for equity, passive income, or both?
This is a good question to ask because you have to know the direction, you’re heading in it with real estate investing, otherwise you’re going to find yourself investing in properties that may not be a good fit for your portfolio, or properties that cost you more money than they are worth.
In this article we will answer the question of if you should invest in real estate for equity or passive income, and provide you with tips on what you should look for with your first investment property.
Equity Vs. Passive Income
Yes, it’s always a good idea to search for properties that are listed under market value but, since the goal of most multifamily investors is to buy and hold a multifamily property, instead of flipping it, your goal shouldn’t just be equity, it should be to earn passive income as well.
If you’re new to the concept of passive income, this term refers to any income stream that doesn’t take you more than four hours per month to maintain it.
Sadly, many real estate investors own rental properties that require their spare time and those properties can no longer be classified as passive income, they can now be looked at as active income.
Once you have the definition of passive income in mind, you need to know that you’re never too young, or never too old to start focusing on earning passive income.
There’s always a demand for multifamily properties across the United States, and you can easily start building your passive income this year when you invest in your first multi-family property.
What Type Of Property Should You Search For?
Once you decide to start searching for multifamily properties, it’s important for you to decide on the type of property that you want to buy.
In the multifamily world, there are three different types of properties, Class A, Class B and Class C.
Class A multifamily Properties are typically the newest properties on the market. They are most often located in the best areas and have great amenities.
Class B multifamily properties are usually older than Class A rentals, have fewer amenities, and are in working class areas.
Class C multifamily properties are usually some of the oldest multi-family properties on the market. These properties have the least number of amenities among multi-family rentals, but are usually the most in-demand, especially during times of economic transition like what we’re facing right now in the United States.
When you’re searching for multifamily properties, keep in mind that even though your goal may be to invest in a large apartment complex, in the beginning, you shouldn’t be afraid to start small and work your way up to owning the bigger property that you dream about.
Many investors often choose to purchase duplexes, triplexes, or fourplexes as their first multifamily properties because this enables them to live in one of the rental units while taking advantage of affordable financing options.
If you have a goal of investing in a bigger multifamily property in a few years, you can start with a smaller property, refinance it, and use the funds from your first property to invest in your next multifamily property.
How To Start Searching For Multifamily Properties
Once you know the type of property that you want to buy, the next step is to find the right area In the United States to invest in that multifamily property.
Since the economy is in recession, it’s best to search for multi-family properties in areas of the United States that have been hardest hit by the economic recession, are distressed, or are undervalued in their pricing.
Ideally, you should be searching for multi-family properties that will offer you a 12%+ annual cash-on-cash return within 15 months of acquisition.
Remember, due diligence is the key to success with investing in multifamily properties because it’s what’s going to give you the confidence that you’re investing in the right property for your investment portfolio.
Due diligence is also important because of the simple fact that if you purchase a multi-family property that’s going to require a lot of expenses to maintain, you’re going to find out very quickly that those expenses are going to eat into the passive income that you could be earning from that property every month.
Some of the things that you should remember to do while practicing due diligence include researching the area where the property is located and have the property thoroughly inspected for any deferred maintenance issues.
You should also the time to thoroughly review the financials for the property just to confirm that it is generating the income that the current owner claims that it’s generating on a month-to-month basis.
Once you purchase the right multifamily property, the next thing to do is immediately hire a property management company to manage that property for you so that you can keep the focus on earning passive income from that property without having to do any of the actual management work yourself.
Now Is The Right Time To Invest In Multifamily Properties
As our country quickly evolves into a nation of renters, now is the perfect time to invest in a multi-family rental property because there’s never been a greater demand for multi-family rental properties nationwide.
If you’re an accredited investor who’s ready to start investing in multifamily properties but don’t have the time, or energy to focus on sourcing, acquiring, and managing multi-family properties yourself, I invite you to contact me.
My company is a private equity firm that makes it easy for you to passively invest in lucrative apartment building syndications.
Our simple step-by-step process allows you to accelerate your wealth creation so you can live a magnificent life on your terms, whether that means traveling the world, spending more time with family and friends, or making an impact.
Contact me today by calling (630) 229-2383 or click here to connect with me online.