Are you thinking about investing in multifamily units? If so, you’re making a smart choice because now is a great time to invest in multifamily and what’s even more ideal about multifamily is that there is more than one way to buy properties and make money from this form of investing.
The first way to invest in multifamily properties is to invest in a crowdfunding deal.
With crowdfunding, you don’t even have to leave home, you can pool your money with other investors and make your money work for you by investing in a multifamily deal.
Crowdfunding companies pay out dividends like traditional companies pay out dividends to their investors.
Bes real estate crowdfunding companies:
- Realty Mogul
can be a smart move but it’s also a decision that takes careful thought and consideration because it can be a high-risk form of real estate investing so it’s best to consider all options before getting started with crowdfunding.
Real Estate Investment Trust (REIT)
Following crowdfunding, another excellent way to invest in multifamily real estate is via a real estate investment trust (REIT).
With this form of investing, you will be working with a publicly-traded company that enables you to invest in real estate in the same manner that you may currently be investing in stocks.
The ideal thing about real estate investment trusts is that these types of companies are also required to pay out 90% of their taxable income to investors, so you can expect a regular passive income dividend check from the company.
Besides multifamily real estate, there are a variety of other properties that you can invest in with a real estate investment trust including shopping malls, office buildings, and other commercial properties.
Tips for choosing a real estate investment trust:
The first thing I do when selecting a REIT is quite similar to what I would do with any dividend-paying stock: look at the dividend yield & dividend history.
You first have the dividend yield. This is the current annual yield of the investment. Usually, the yield of a REIT will be higher than other dividend-paying stocks, as a REIT needs to distribute most of its profits as dividends. I usually look for REITs with yields around 5 or 6%, which are a bit lower than my other real estate investments.
Then, I look at the REIT dividend history. This is important, as you want to invest in a REIT that has a good history of paying dividends. What is even more important is that the REIT has growing dividends over time, meaning that the company cares about its shareholders, and also that the dividend payouts will keep up with inflation.
Financials & Funds From Operations (FFO)
Just as with any other investment in a business, I then look at the financials of the company. You can look at the usual gross revenue, expenses, and profits, but for a REIT there is another metric that is more important than profits: the funds from operations, or FFO.
Indeed, as a company deriving most of its profits from real estate, a REIT will usually count depreciation and amortization of their portfolio to their earnings, meaning a lower profit on the balance sheet. But what we want to look at is their funds from operations, which is the ‘real’ cash flow of the company obtained by adding depreciation & amortization to their earnings. This is the metric that I look at when selecting a REIT, and comparing REITs between each other.
Type of Property Owned
Next, I look at the type of property that is owned by the REIT I want to invest in. Indeed, investing in REITs is a fantastic way to diversify your property portfolio in sectors that wouldn’t be accessible to you otherwise, like healthcare real estate, or large retail properties like shopping malls.
I also like to use REITs to invest in really specialized real estate, like I did with a company called DLR (Digital Realty Trust Inc), which is a company that invest in real estate dedicated to hosting computer servers. I think is a very good sector that will have a strong growth in the future, and unless you have millions of dollars to invest, this kind of investment is only accessible via a REIT.
I also look at where the property portfolio of the REIT is located, to see if it can diversify my real estate investment portfolio geographically. Indeed, it’s really easy to invest abroad when using REITs: usually, you will have access to a wide selection of stock exchanges from the broker that you will use to invest in REITs. In a few clicks, you can invest virtually anywhere on the planet.
Therefore, even if most of my REIT’s investments are located in the US, I have some of them where I live at the moment (in Europe), but also in Hong Kong or Singapore. I really like to use REITs to diversify my portfolio all around the world, as it’s nowadays so easy to do so.
What About REITs ETFs?
Finally, I wanted to end this article with another consideration when selecting REITs: what about REITs ETFs? As you might know, ETF stands for Exchange Traded Fund, which is a mutual fund composed of several positions, but that you can buy on the stock market just like another stock.
There are indeed ETFs out there that are solely composed of REITs. I have some in my portfolio, that I bought when I started investing in dividend paying stocks. However, I really recommend selecting good REITs yourself instead, rather than relying on an ETF that will have a wide selection of REITs inside it.
Buy A Multifamily Property
Last of all, but most important, if you didn’t want to buy a multifamily property via crowdfunding, or a Real Estate Investment trust, you should consider investing in multifamily properties yourself.
Obviously, this method of investing in multifamily takes time because you have to target the right area, find a property to invest in and potentially manage that property yourself.
Instead investing in multifamily properties on your own, why not partner with Trier Capital?
At Trier Capital, our simple step-by-step process allows you to accelerate your wealth creation so you can live a magnificent life on your own terms, whether that means traveling the world, spending more time with family and friends, or making an impact.
Contact us today at (630) 229-2383 or click here to connect with me online.