Are you thinking about getting started with multifamily real estate investing but you’re not sure if it’s the best way to make passive income? If so, you come to the right place.
The reality is that multifamily real estate investing is one of the best ways to make passive income in 2020 because of the simple fact that rental properties are in demand more than ever before and with multifamily property, more doors always equals more income.
If you’re ready to get started with investing in multifamily properties but you don’t know what steps to take next, this article will provide you with tips you can use for investing in multifamily properties.
Tips For Getting Started With Multifamily Real Estate Investing
Before you get started with multifamily real estate investing, the first thing that you should do is to make sure that you’re ready to invest in your first multi-family property.
This step is important because many people get involved with investing in multifamily properties every year without actually thinking about the responsibilities that come from owning a property.
Before you get started with investing in a multi-family property, make sure that you’re ready for the workload involved with managing it yourself, or you should commit to hiring a property management company.
Let’s say that you realize that you’re not ready to own a multi-family property just yet. The good news is that you can still get started with investing in multifamily properties when you invest in a Real Estate Investment Trust (REIT).
What is a Real Estate Investment Trust? It’s a company that finances, owns, and operates income-generating properties including multifamily real estate.
The cool thing about owning a multi-family property in a real estate investment trust is that you can still be involved with owning property but you don’t have to have any of that headaches or day-to-day responsibilities that come from managing it.
Real estate investment trusts are awesome because like stocks or mutual funds, they pay out dividends on a quarterly or annual basis. A REIT will also offer you the benefits of diversification, transparency, liquidity, passive income, and awesome risk-adjusted returns.
Even though real estate investment trusts offer a wide variety of benefits, make sure that you do your due diligence because it’s easy to lose money on any investment when you don’t take the time to personally research the company that you’re planning on investing your money with.
What To Do Getting Started With Investing In Multifamily Properties
Once you ultimately decide that you’re ready to invest in a multi-family property, the first thing that you want to do is decide on where you plan on investing.
If you plan on investing in multifamily properties outside of your city, town, or state that you live in, it’s best to utilize Google, or your favorite search engine, to do a deep dive into researching the area that you plan on purchasing your first multifamily property.
In 2020, the country is different than 2019 because, areas of the United States that were once considered safe havens are no longer optimal places for investing in rental properties, at least for the foreseeable future.
For example, cities like Minneapolis Minnesota, and Portland Oregon were once considered to be optimal locations for investing in multifamily real estate. Times have changed. This year, both cities have been hit hard by a coronavirus and the subsequent riots that have followed the George Floyd protests.
How To Choose The Right Multifamily Property
After finding a great City to invest in a multifamily property, the next step is to start looking for deals there.
If you’re not able to find multifamily properties for sale on the internet using sites like realtor.com or Zillow, try using a website like Bigger Pockets or Facebook groups because, you may be able to connect with other Real Estate Investors who know of deals in the city that you want to invest in.
After finding a potential multi-family property that you’re interested in purchasing, the next step should be to visit that property in person, have it inspected, and then you should also take the time to do a deep dive into the rent rolls and financials for the property.
During the process of reviewing the financials for the property, you should also calculate your monthly cash flow, and expenses, while also figuring out your cap rate as well.
If it’s your first-time calculating a cap rate, you should opt for a cap rate that’s in the 5 to 10% range because anything lower than this may mean that the yield is going to be too low.
What Makes A Great Multifamily Property?
As a new multifamily real estate investor, you may be wondering what makes a great multi-family property? This is an excellent question, here are some pointers for what you should look for in a property.
Location – If you hung out with other realtors in the past, you may have heard them talking about the iconic phrase “location, location, location”. The reason why Realtors focus so heavily upon location is because the location of a property could mean the difference between having a great property that generates awesome rental income, or property that provides you with headaches during the years that you own it.
To determine if a property is in a great location, you should first take a look at what’s around the property. Ideally, the multifamily property should be in a walkable location that’s close to shops, stores, restaurants, and other things to do in the area.
The crime rate for the location should also be low, and there’s should to be a great school district nearby so that you can attract parents with children to live in your multifamily property.
Number Of Units – The next thing I always look for when investing in the new multi-family property is the number of units that the property has to offer.
Since you’re just getting started with investing in multifamily properties, you may want to consider investing in a smaller multi-family the complex like a duplex, triplex or even a fourplex but if you’re comfortable with the responsibilities that come from investing in a bigger property, you should consider investing in an apartment complex that has between 10 to 20 units.
Besides the total number of units, you should also pay close attention to how many rooms are in each unit as well.
Even though studio apartments and one-bedroom units are good, your goal should be to invest in a multi-family property that has a minimum of two to three bedrooms per unit because this is going to offer you more options in terms of marketability.
Income – Last of all, but most important, you should pay close attention to the potential income that you can earn from the multifamily property that you’re thinking about purchasing.
When evaluating a multi-family property, always do your due diligence and consider using the 50% rule.
What does this mean? It’s quite honestly one of the easiest rules to follow in real estate investing because, with this rule, it provides you with a conservative approach to investing in multifamily properties. The 50% rule states that 50% of the income from the property should be spent on expenses, and not your mortgage.
Want To Learn More? Contact Trier Capital
At Trier Capital, our simple step-by-step process allows you to accelerate your wealth creation by investing in multifamily properties 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.
If you’re ready to invest in multifamily but you don’t want to do all the work yourself, connect me today to learn more about how easy and efficient it is to invest in multifamily properties with Trier Capital.