Are you planning on getting started with investing in multifamily investment properties? If so, you’ve come to the right place!
Even though investing in multifamily investment properties is a smart decision to make, there are a variety of mistakes that new investors make that cost them time and money.
Thankfully, one of the important things you can do as an investor learns from the mistakes of those investors who started before you. This is why in this article we will share with you some of the most common mistakes that new multifamily investors make, so you can avoid making them.
Mistake #1 – Not Getting Started
Yes, you may indeed think that you don’t know enough about getting started with investing in multifamily investment properties but the reality is that knowledge will only take you so far. You have to apply what you know or that knowledge will go to waste.
If you’ve been sitting on the fence, waiting to get started, you can have confidence that now is the right time to invest in multifamily properties because there’s never been a better demand for multifamily rentals than right now.
It’s also a great time to invest in your first multifamily property because mortgage interest rates have never been lower and you may be able to qualify for a super low-interest rate to finance your first multifamily property.
Time to get going! Don’t waste another week thinking about when you’re going to invest in your first multifamily rental property because that time may never come.
You can get started with investing in your first rental property for as little as $3,000 down (if you qualify for an FHA loan and decide to house hack your first rental).
Don’t feel comfortable managing a large rental? No problem! You could also invest in a duplex or triplex. This will save you the hassle of managing large scale investment property and provide you with the experience of managing your first rental.
Mistake #2 – Get Rich Quick Mindset
In today’s world, we see real estate investors on TV getting “rich” from their real estate investments but what they don’t tell you is that it took them years to get to the point in their careers where they would consider themselves to be rich.
As you enter a career in investing in multifamily investment properties you need to have the right mindset and realize that you won’t get rich quickly. Why? Not all of your real estate investments are going to always work. You have to learn from your mistakes, stick with your goals, and realize that you will be successful if you keep pressing forward by investing in your next deal.
Yes, it’s possible to get rich by investing in multifamily real estate but it’s something that can only be done slowly and over time. If you’re ready to stay focused on slow and steady growth, you will be able to build the riches and wealth that you want in real estate.
Mistake #3 – Letting Fear Stop You
Ask any investor and they will tell you that they had some degree of “fear” as they invested in their first multifamily deal but the truth is that you cannot let fear stop you from moving forward with the purchase of your first property.
Fear is something that’s stopped many investors over the last 50 years from investing in multifamily properties and missing their chance to capitalize on multifamily rentals. Don’t let this happen to you! Learn how to evaluate what’s causing the fear in your mind and move past it, so you don’t miss your chance to invest in a great multifamily deal.
Mistake #4 – Not Assembling A-Team
As we’ve stated on this blog in the past, one of the most important things that you absolutely must do as a multifamily real estate investor is establishing a team of people to assist you with investing in multifamily properties.
Any journey worth taking isn’t worth going on it alone. During the process of investing in multifamily properties, you should assemble a team that includes a mentor, contractors, plumbers, electricians, landscapers and property managers.
With a great team by your side, you will always have the right people to tap into who can help you with any question or need that you may have with one of your properties.
Mistake #5 – Giving Up Too Quickly
Investing in multifamily investment properties is certainly a “long game” that you have to be prepared for going in because you’re not going to be able to build significant wealth or cash flow overnight.
Over the years many investors have tried and failed at investing in multifamily properties because they gave up to quickly and sold their rentals rather than moving onto their next deal. Don’t let this happen to you.
Commit yourself that you’re going to stick it out and focus on building a portfolio of investment properties because within a few years you’re going to enjoy the proceeds of your hard work and dedication.
Mistake #6 – Lack of A Strategy
What’s your multifamily investment strategy?
If you’ve invested in the Stock Market in the past, you know better than anyone that you have to have a strategy in stocks or else it’s very easy to go broke quickly. The same is true when investing in multifamily properties, you have to establish a strategy for investing when you’re getting started and be committed to sticking with it over the long haul.
One of the best ways to establish a strategy for investing in multifamily properties is to learn the basics about investing in multifamily properties, start small and be committed to continuing building your knowledge over time.
As you’re getting started, you should also seek out knowledge and advice from other investors who are already building their portfolios of investment properties. By reading blogs like Fortunes and Flops, Bigger Pockets or Fortune builders, you will find ideas and strategies that you may want to incorporate into your strategy that will help you to build a portfolio of investment properties.
Mistake #7 – Not Thinking About All of The Extra Costs
There’s always going to be extra costs that you have to account for when investing in multifamily properties.
You have to think about these costs as you move forward with investing in your first properties because you’re going to face paying costs like utilities, closing fees, and other holding costs. Don’t forget to account for these costs because it’s never good when you have to scramble at the last minutes to pay costs that you didn’t account for.
Mistake #8 – Not Reinvesting Your Profits
Investing in multifamily properties is a long game for sure and one of the most important things that you have to do is reinvest your profits instead of taking those profits and buying something for yourself like a new truck, boat or RV.
Instead of spending the profits on other things, reinvest those profits back into another multifamily investment property. Investing your growth into growth is the best way to build a long-term sustainable portfolio of investment properties.
Yes, you do deserve to splurge and treat yourself now and then but it’s best to set goals for the big purchases that you want to make and focus on investing the bulk of your profits if you want to build a great portfolio of investment properties over time.
Mistake #9 – Thinking That You Don’t Have to Continue Learning
Long time multifamily investors like Grant Cardone and Joe Fairless know that once you get started with investing in multifamily properties, you’re not done learning.
True growth as a multifamily real estate investor is going to come when you reinvest in your education because that knowledge is what’s to help you as you grow your portfolio of investment properties.
Commit to investing in your education by purchasing books, courses, subscriptions, and tickets to live events every year because your commitment to your education will pay off.
Thanks to the internet, it’s easier than ever before for every multifamily investor to continue their education and have the ability to learn anywhere, at any time so don’t let the time of day, location or commitment stop you from learning because it’s always possible to continue learning wherever you are.
Mistake #10 – Lack of an exit Plan
Part of your overall strategy should be to have an exit plan or even multiple exit plans that you can tap into when needed.
Exit plans are common with other forms of investing, especially in the stock market. The average stock market investor knows how long they will hold onto certain stocks and when they will sell those stocks, so they can always reap the highest possible return on their investments.
Mistake #11 – Not Using Enough Data When Calculating Estimates
Over the years that you’re investing in multifamily rental properties, you’re going to see that estimating is a huge part of the process of investing in multifamily, and investing in general.
When it comes to the property that you’re thinking about buying, you have to estimate things like the value of the property right now and the value of the property in the future after you’ve done some renovations and fixed it up.
Thankfully, when investing in multifamily, you can have a good idea of the future value of a property by studying the history of the town where the property is located to get a good idea of where the value of that property may be in the future.
Mistake #12 – Continuing to Focus on Investing in Small Properties
You may start small as a multifamily investor but it’s not advisable to stick with the strategy of investing in small properties.
Growth means that you should be focusing on reinvesting your gains in the years to come into bigger projects because bigger investments also come with more ROI so remember to tweak your plan and commit to investing in bigger projects over time.
Mistake #13 – Neglecting Due Diligence
Due diligence is quite literally at the core of everything you’re going to do as a multifamily real estate investor because it’s going to save you money and the hassle of investing in projects that don’t produce enough ROI.
Your due diligence efforts before investing in a multifamily property should include doing the following:
- Checking the rent roll
- Reviewing the owner’s 12-month operating statement
- Inspecting each unit
- Doing a market analysis
- Reviewing comparable properties in the area
- Finding out if there are any delinquencies or pending litigation against the landlord
For more information on due diligence click here to read our “deep dive” article into this subject.
Mistake #14 – Spending Too Much Money on Rehab
Last of all, but most important, another mistake that you absolutely should not make when investing in multifamily properties is spending too much money on rehab the units in a property.
Don’t get us wrong, rehab is important but that doesn’t mean that you have to spend tens of thousands of dollars on rehab.
Focus on the basics and make each unit a place that anyone one would want to live in instead of overspending on rehab and focusing on improvements that you will never be able to get your money back on.
We’ve offered you a lot of mistakes that you don’t want to make as a multifamily real estate investor.
Remember that mistakes will come, as they will with any new opportunity but the important thing to remember is that you can’t stay in one place and let the mistake define you.
Always stay committed to learning from your mistakes and moving forward with building your portfolio of investment properties because this will lead to your long-term success as a multifamily real estate investor.