It’s always a great time to invest in multifamily properties because there’s no better way to develop passive income and build for your future than by investing in a multifamily property.
Even though the multifamily market looked bleak one year ago, the reality is that multifamily prices are on the rise nationwide as multifamily property values continue to increase, riding the wave of rising property values pf the nationwide real estate market.
Is now the right time to buy a multifamily property? The answer to this question is yes because, price increases show no sign of slowing down so you should make the move to invest in multifamily now, especially if your goal is to establish passive income from multifamily properties.
In this article, I will provide you with insight into what’s happening with multifamily properties nationwide, including tips on how to find your first property.
What’s Happening In The Multifamily Market?
Thanks to a recent report by Real Capital Analytics, we know that multifamily prices are on the rise, year-over-year.
RCA reported that multifamily property prices in April were up 0.7 percent for the month and were 7.6 percent higher than their levels one year ago.
This compares to an 8.4 percent annual price increase for all commercial property types. Industrial properties saw the greatest price appreciation over the past 12 months, with an 9.4 percent rise.
Office buildings within central business districts were the worst performing sector with a price decline of 4.9 percent for the year, although prices were up 3 percent on the year for all office buildings considered as a single asset class.
Taking the long view
The first chart, below, plots the long-term changes in the RCA CPPI for multifamily properties. While the housing bust of 2007 had a significant impact on all commercial property types, including multifamily, the much sharper, but shorter, downturn due to COVID-19 caused only a slight ripple in the price appreciation curve for commercial property as-a-whole.
The second chart, below, takes the same data but plots it as the month-over-month change in the values of the indices. This chart makes clear that the impact of the COVID-19 inspired shutdowns on apartment prices were in the range that is seen from normal seasonal variations.
While the month-over-month price changes for commercial property as-a-whole turned marginally negative in the April-May 2020 time frame, price appreciation for apartments as an asset class remained positive throughout the COVID-19 era.
Major metros lag
The RCA report provides data comparing the price changes of commercial property in 6 major metro areas* against those in the rest of the country.
It does not separate out apartment’s prices from those of other commercial property types in this section. However, the comparison is interesting. RCA reported that the year-over-year price increase for commercial property in the 6 major metro areas was only 2.7 percent. The year-over-year price increase for commercial property in the rest of the country was 10.1 percent.
*The major metros are Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC.
How To Find Multifamily Deals In 2021
Even though multifamily property values are on the rise nationwide, there’s still plenty of great deals out there for investors.
Before searching for a multifamily property, here are several things that you should do in the beginning:
1. Choose your type of multifamily property and investment strategy
There are several types of multifamily investment properties to choose from. Some investors like to keep things simple and choose a duplex as their first-time investment. This can be a good option if you’d like to manage two properties that exist side by side and share much of the same infrastructure. Tenants on both sides of the property typically pay the same amount in this case.
There is also the option to invest in an apartment complex that has a handful or even dozens of apartments. The price for rent can vary based on square footage, bedroom count, amenities, and other factors in this instance.
The type of multifamily dwelling you should invest in really comes down to your personal choice and your long-term goals. You can fix and flip the property or hire a property manager to deal with the land lording tasks. Weigh out all the possibilities and decide what works best for you before you purchase the property.
2. Do your research and find quality leads
You may already know what type of property you want to invest in—including what it looks like and where it should be located. However, you may be unsure about how to actually go about finding your perfect investment property. MLS property listings are one of the most popular places to search. The problem with using the MLS, however, is that every other investor has access to that same information.
You can often get an edge by browsing the listings for available rental units in the town or neighborhoods you’re focused on. Look for listings that are going for lower than expected per month or that have photos that appear shabby. These could be signs that a landlord simply doesn’t have the time or resources to fix up a rental property and charge the maximum amount for rent. Further, it may imply that a landlord or property owner is ready to sell and unload the responsibility.
You can also use a digital service that displays listings for available multifamily properties without having to weed through single-family residential properties. Online platforms such as LoopNet and Crexi are popular options for commercial multifamily properties.
In addition, mainstream platforms like Trulia, Zillow, and Redfin all offer apps that will essentially push available deals right to your phone in real-time for more traditional duplex, triplex, and quadplex homes.
3. Work with a Realtor
Real estate professionals have a good grip on the market. Consider forming a relationship with a local Realtor who handles multifamily properties. This could help you be among the first to get in for a look when a property with multiple units goes on the market, as Realtors have developed networks.
Another benefit of working with a Realtor is you get a great opportunity and an open door to their contacts. This partnership can help you build the portfolio you strive for and potentially open up off-market deals that have less competition to purchase. (And it helps in our next point.)
It’s also worth your time to join a landlord association in your local area and attend meetings if you already own or manage a rental property. These meetings can serve as great networking tools and give you access to other property owners, some of whom will eventually want to sell their properties.
Another smart way to network is to utilize social media. Join Facebook groups, ask your followers if they have any leads, find other expert real estate investors you would like to emulate, and do your due diligence on the community around you.
5. Get the funding
Things move pretty quickly in the world of multifamily deals. That means it can feel like you need to obtain financing in half the time when a golden opportunity arises. And it is pretty devastating when you find the perfect investment property but it falls through because you don’t have the financing lined up already.
There are a lot of ways to get funding for a property, whether that is through a hard money loan or a rental loan, a family member, or a bank. Make sure that this part of your investment strategy is in the works from the beginning.
Drive for dollars
Driving around local neighborhoods provides great insight on potential property deals. Look for “for rent” or “for sale” signs. Also, keep an eye out for properties that appear out of place in the neighborhood or that aren’t well taken care of. With some minor rehab, you can increase the occupancy rate and reduce vacancies to create the multifamily properties of your dreams.
Write down the addresses as you drive around to check home ownership records and you might find a deal.
Try direct mail
Another tip you can try involves mailing information directly to owners. You can buy lists of owners and their contact information or research the information yourself. With direct mail campaigns, you should expect to receive only a few responses. Examine what works best for you and what marketing campaigns are more successful than others.
Search through old ads
It’s frustrating for landlords to have a vacant property or consistently search for new tenants. By calling old “for rent” listings, you might find an owner who is ready to sell.
Similarly, old FSBO ads, or “for sale by owner” ads, might lead to a deal with an owner desperate to sell.
Instead of searching for multifamily properties using the same methods as other investors, why not search for off market properties first?
Consider Off Market Multifamily Properties
One benefit of off-market deal-making is that, since the property isn’t actively being listed, you’ll likely be the first person to reach out to the property owner to propose a deal.
If the owner has not listed the property, they are likely not actively looking to sell. However, this does not mean that the owner wouldn’t be open to the idea of a sale.
There are certain trigger signs that you can look for in a property owner to know whether or not they are worth approaching.
No broker fees.
Another benefit to searching for off-market multifamily properties is skipping broker fees.
This kind of direct purchasing can allow you to offer more money directly to the owner of the property or to skip fees that are usually incurred when listing a property.
When looking for off-market properties, you also have much more flexibility.
Since you’re dealing with owners directly, rather than intermediaries, you have the opportunity to create more flexible deals that benefit both parties.
Contact Trier Capital
At Trier Capital, we specialize in sourcing, acquiring and managing multifamily properties nationwide.
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.
If you’re an accredited investor who is ready to invest in multifamily properties, I invite you to contact me at (630) 229-2383 or click here to connect with us online.