Are you planning on investing in multifamily properties? If so, you’re making a smart choice but there are a variety of mistakes that you want to avoid making along the way!
In this article, we will break down some of the most common mistakes that new multifamily investors make so that we can save you the time, hassle, and disappointment of making the same mistakes that investors who have come before you have made.
Mistake #1 – Not Keeping Good Records
One of the first mistakes that you do not want to make as a multifamily investor is not keeping Good Records.
Record-keeping is important because of the obvious fact that it’s what’s going to help you to ultimately save money in the long run, especially on taxes that you pay at the end of the year. Instead of just keeping a box of receipts and an Excel spreadsheet like some investors, your goal as a multi-family investor should be to have the best record-keeping program or solution from the very beginning because that investment will pay off in the long run.
Mistake #2 – Not Hiring A Team To Help You Manage Your Property
Another mistake that you don’t want to make as a multi-family investor is trying to do all the work on the property yourself. This is a common mistake that many investors make in the very beginning because they think that they can easily do things like painting, plumbing, electrical, or work on other projects that their properties may need when what they don’t realize is that they are actually losing money doing the work themselves instead of saving money.
The key to success as a multi-family real estate investor is to hire a team of contractors and other service personnel from the very beginning who can assist you with renovating your property and managing it so that you don’t have to do that work yourself.
Mistake #3 – Not Doing Due Your Due Diligence
Besides not keeping records or trying to do all the work yourself, another common mistake that you don’t want to make as a multifamily real estate investor is not doing your due diligence. This means not taking the time to run the numbers and verify that a multi-family property makes sense financially before you decide to purchase it.
Don’t get caught up trying to purchase a cheap multi-family property, always take the time to run the numbers and do your due diligence because taking that extra effort to verify that a property makes sense financially will save you the time, money, and hassle of purchasing a property that will not be a good fit for your portfolio of investment properties
Mistake #4 – Spending Profits You Don’t Earn
Regardless of the amount of money that you think a property will be cash flow in the near future, another mistake that you don’t want to make as a multifamily real estate investor is spending profits that you have not earned yet.
Many investors make this mistake every year by purchasing extra things that they don’t need on credit with the assumption that the cash flow from their property will eventually enable them to pay those things off.
Never assume that the money will come in when a property has not been rented yet. You should always err on the side of caution when it comes to how you spend money because the decisions that you make now will affect your cash flow in the years to come.
Mistake #5 – Not Looking for Off-Market Deals
Even though most multifamily Real Estate Investors have been conditioned to look for deals on the MLS or websites like Trulia and Zillow, the reality is that there is a large chunk of deals that can be found off Market.
You absolutely do not want to make the mistake of neglecting to search for off-market deals because doing so could mean that you end up missing potentially fantastic deals that could end up being purchased by your competitors.
Mistake #6 – Neglecting to Create an Exit Strategy
Regardless if you plan on holding onto a multi-family rental property for the foreseeable future, you should always have an exit strategy for that property. Having an exit strategy is important because you want to know what steps to take next should you need to sell the property for any reason in the near future.
Mistake #7 – Not Creating A Deal Funnel
We’ve offered you many mistakes that you don’t want to make as a multi-family real estate investor but one of the top mistakes that we encourage you to avoid making at all costs is not creating a deal funnel.
What is a deal funnel? It’s a systemic process that you’re going to take all of your potential deals through from start to finish. Your funnel should include a complete process for how you intend on finding leads, communicating with owners, analyzing, and then ultimately pursuing one or more of those leads with an offer that you intend to close on.
Creating a deal funnel will save you the time and hassle of going through “dry spells” where you don’t have any multifamily deals in your pipeline or are unable to find any properties to bid on.
If you are continuously adding properties to your deal funnel, you can rest assured that you’re always going to have at least one deal that you have in your pipeline while other multifamily investors are out there complaining about being unable to find deals.
Mistake #8 – Not Asking for Help
Last of all, but most important, another mistake that you don’t want to make is the mistake of not asking for help.
It doesn’t matter how long you’ve been a multi-family real estate investor, or how much experience you have in the industry, you should always be willing to ask for the help of other investors when you need it because doing so is going to provide you with valuable learning experiences while saving you the hassle of making costly mistakes.
We provided you with many mistakes in this article that you don’t want to make as a multifamily real estate investor.
By reading the tips in this article, and taking the time to be prepared with each deal that you plan on investing in, you can save yourself a lot of time and money while ensuring your success.