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Are you searching for information on how to start investing in multifamily real estate?

Multifamily real estate continues to be one of the very best investments in 2020 despite the current pandemic and economic uncertainty that we face in the United States. Why? One reason why multifamily real estate continues to outperform stocks and other traditional Investments is that people are always going to need a place to live.

Housing is an ideal asset for any investor to hold because it’s always going to be in demand regardless of which political party in the White House, or how the economy is doing.

In this article, I will provide you with several tips that you can use for successfully getting started with investing in multifamily real estate.

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How To Start Investing In Multifamily Real Estate – Tips You Should Know

Tip #1 – Choose The Right Location

As I mentioned in previous articles, the first thing that you need to do before investing in a multi-family property is to choose the right location.

Location is always important, especially when investing in multifamily real estate, because it’s easy to buy a great property but if it’s in a bad location, you’re going to have more trouble renting that property than you can ever imagine.

How do you choose the right location? That’s the easy part! Thanks to the internet, you can easily research any city in the United States with just a few clicks of the mouse. During the process of researching a city, pay close attention to things like crime rates, school districts and jobs.

You want to purchase a multi-family property in a city that can be classified as economically up-and-coming. This means that more companies are moving to that city, creating jobs, and also economic opportunities for those people who live there than companies moving out.

Besides finding a city that’s growing economically, the next thing you should verify is that the city has a lot to offer your prospective tenants.

Ideally, the city that you purchase a multifamily property should have plenty of shops, stores, restaurants, and things to do in the area.

Tip #2 – How To Find Multifamily Properties For Sale

Choosing a city for purchasing a multi-family property is only the first part of the process of investing in a multifamily property. The next part is searching for multi-family properties for sale in that city.

Thankfully, there are a wide variety of ways that you can find multi-family properties for sale including using websites like biggerpockets.com to connect with other Real Estate Investors in that City, Zillow, realtor.com, and of course Craigslist might have some multi-family listings on them.

After you’ve taken the time to search for multi-family properties online, you may also want to spend some time in that city searching for properties via the time-tested method of driving for dollars.

During the process of driving for dollars, it’s best to keep an eye out for properties that look like they may have been either abandoned or neglected. Typically, these properties have uncut grass, overgrown bushes, or no vehicles in the parking lots.

If you don’t have a lot of time, or the desire to spend in a city driving for dollars yourself, you should consider hiring one or more “bird dogs”.  

Bird dogs are skilled at finding properties for sale in any given area. It’s best to always have at least one bird dog in the city looking for the properties for you regularly because this is going to save you the time of searching for properties yourself.

Let’s say that you didn’t want to hire a bird dog, the next thing that you should consider doing is hiring a local real estate agent. This is a smart move to make because local Realtors know the market that they represent and, in many cases, they may have pocket listings or multi-family properties that have not been listed for sale on the market yet.

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Tip #3 – What To Look For In A Multifamily Property

So far, I’ve offered you several tips that you can use for identifying a great city to invest in a multi-family property and I’ve also offered you several solutions for finding the right property.

The next part of the process is what you should look for when you ultimately do find a multi-family property that you’re interested in investing in.

Number Of Units – The first thing that you should be looking for when evaluating a multi-family property is the number of units.

One of the best multifamily properties to invest in when you’re just getting started is a fourplex because this will help you to “get your feet wet” managing a multifamily property while giving you the ability to house hack or live in one of the rentals yourself.

Besides reviewing the number of units, you should also focus on the number of rooms that each unit has to offer. Ideally, each unit should offer at least three bedrooms per unit because this will give you the ability to attract a wider body of potential renters compared to if you had a multi-family property that just had one to two bedrooms per unit.

Potential Income – After reviewing the number of units that the multifamily property has, the next thing that you want to do is to investigate the potential income that you could earn from your property.

Thankfully, you can easily use a wide variety of online resources like rentometer.com, Craigslist, Zillow, or even realtor.com to review what units in the multifamily property are currently running for then compare those rentals with other comparable properties in the same area.

Remember The 50% Rule – Another important thing to consider when reviewing the multifamily property is the 50% rule. This means that 50% of the income that you can expect to earn from the property should be spent on the expenses the property has, and not your mortgage.

If you find that you would be spending more than 50% of the income from the property on the mortgage, it’s best to continue searching for other multi-family properties for sale.

Capitalization RateAs an investor who is interested in how to start investing in multifamily real estate, one of the most important things that you want to do with reviewing a multi-family property is to figure out what the capitalization rate is going to be because this is what’s going to help you to determine how soon you can get a return on your investment.

To calculate your cap rate, all you have to do is take your monthly net operating income, multiply that by the number 12, then divide that number by the property’s current market value.

When calculating your cap rate, keep in mind a higher number is not always better because a higher cap rate typically means that you’re going to have higher risk. It’s best to always opt for a lower cap rate that’s in the 5% to 10% range because anything lower than this amount could not have enough yield, while anything higher could mean that there are some risks with the investment that you may not be willing to take.

Learn More About Why The Property Is Being Sold – Last of all, but most important, another thing that you want to do when evaluating a multi-family property is to find out who owns the property and why they are selling it.

Is the owner selling the property because it has too many maintenance issues, the city is on the downside economically, or the area is being overrun by crime? These are all important questions to ask because our world has changed in 2020 and some cities have higher crime rates than they did just one year ago so it’s important to ask the right questions before submitting an offer on a property.

Once you get to the place where you’re interested in submitting an offer on the property, make sure you get the property inspected and then submit your offer. If your offer is accepted, you should immediately hire a property manager to professionally manage that property because this will save you the time and hassle of managing that property yourself.

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Invest In Multifamily Properties With Trier Capital

That’s it for our tips on how to start investing in multifamily real estate! Although we’ve offered you a “birds eye view” of multifamily investing, there are other steps involved that can be time consuming.

What do you do if you want to buy your first multifamily property but you don’t want to do all of the work yourself? The solution is to call Trier Capital.

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.

For more information about the benefits of investing in multifamily properties with Trier Capital, contact us today by calling (630) 229-2383 or click here to connect with us online.

Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.