How to start investing in multifamily real estate

April 18, 2022 | Buyers
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Follow these seven steps as you buy your first multifamily property to reach ultimate investment success 


With greater demand and better performance than other types of real estate, it’s no wonder that U.S. multifamily investment volume is expected to reach $234 billion this year. [1]

Despite the higher initial cost, forward-focused investors are setting their sights on multifamily over single family real estate as an income-producing asset due to its stability, resiliency, and profitability. 

Whether you’re a new investor or a seasoned single family owner interested in diversifying your portfolio, multifamily assets require careful considerations to ensure you execute properly and maximize your return on investment (ROI).

To help you get your investment strategy off to the best possible start, follow along for our top seven steps to successfully purchasing your first multifamily property from our expert team of multifamily investment advisors.


Step #1: Choose an investment strategy.

Assuming you’ve already learned the basics of the real estate market, get started by deciding which multifamily investment strategy best fits your unique goals. 

The following investment strategies are some of the most successful in the multifamily market with each offering a different risk profile and level of involvement:

  • Value-Add, also called the BRRRR strategy, is the most common among investors and involves buying, rehabbing, renting, refinancing, and repeating the process again with a new property. It offers a high-level of involvement in the project, support in building an extensive portfolio, and generation of steady passive income. 
  • Opportunistic deals are often value-add properties, land assemblage, land banking, or land development projects on the high end of the risk profile that offer strong ROI if executed properly. In this situation, you’d have to be very hands-on in the same manner as the value-add strategy, but cash flow should not be a top priority because it only comes from the sale or refinance of the investment once complete. 
  • Core investing is acquiring highly stable, low-risk assets like those located within major markets, fully leased apartments, or high-credit tenant bases—the opposite of the previous two strategies. It offers reliable cash flow and preservation of capital, but they also trade for the lowest cap rates in their respective markets. 

Each strategy offers a different risk profile and level of involvement, so be sure to take time to choose the one that would best work for you as an individual investor. 


Step #2: Meet with a lender.

After you’ve determined your investment strategy, it’s time to meet with a lender to explain your plan and ensure you’re qualified with them as to what you can purchase.

When assessing your qualifications, lenders will usually look at your credit score, debt-to-income ratio (DTI), and down payment. 

In addition to making sure you’re qualified, lenders can also help you secure loans to ensure you have all the necessary capital to make a purchase. 

It’s important that you’ve talked with lenders before you set up meetings with brokers to give them the highest-level of confidence possible in your interest in and ability to execute on a multifamily deal. 


Step #3: Prepare your documents.

Even if you already own several single family homes, it can be difficult to be taken seriously in the multifamily market when you have zero experience.

Before you start speaking to brokers and other industry professionals, you have to show you’re prepared. The best way to do this is to come to meetings armed with the documents that brokers want to see.

These documents include:

  • A resume of what you’ve done in the past
  • Bank statements to show you have the necessary capital 
  • Qualification with a lender showing your purchasing power

By presenting these items when you’re talking to brokers, you’ll show that you’ve done your due diligence, you’re ready to move forward, and you’re prepared to execute on a deal once you find the right property.


Step #4: Find a property that fits your criteria.

Once you’ve completed all the legwork in the prior steps, it’s time to work with an experienced broker to find an ideal multifamily property that will meet your unique real estate investment goals. 

As you conduct your search, consider the following factors to identify the best property:

  • Location — Comb through information on local employment rates, per capita income, crime rates, and potential renter demographics.
  • Cash flow — Conduct your own property analysis instead of relying on advertised or published cap rate to identify the accurate potential profit margin. 
  • Capital improvements — Search for properties with simple, inexpensive improvements that could be made to quickly boost the value of the property. 
  • Price — Consult a multifamily expert to avoid overpaying on your multifamily investment property. Remember: your investment success will heavily depend on your initial purchase price.


Step #5: Make an offer and execute quickly.

Once you’ve identified your ideal property, consult with your agent to determine the highest offer you’re willing to make based on your budget and financing limit. After you’ve set that number, move quickly and give your agent the green light to make an offer on your behalf. 

A lot of first-time multifamily investors hesitate and start to second-guess themselves right before they make an offer—don’t do this. You’ve already done the legwork and proved you’re ready to invest: the only step left is to be decisive and execute your plan. If you hesitate, there will be plenty of other multifamily investors waiting in line to snap up the property.

It’s important to note that counteroffers are common in commercial real estate deals, so don’t be discouraged if you have to renegotiate before closing. Once your final offer is accepted, it’s time for the closing process which involves purchasing insurance, setting up an inspection, and handling closing costs. 


Related resource:
How fast decisions will make you an elite multifamily investor


Step #6: Renovate and repair your new property.

After you’ve completed closing on your multifamily property, the real work begins. 

Get started by making any necessary renovations or repairs on the property to get it ready for incoming tenants. Repairs should include any listed in your inspection report and ones needed to get the property up to the standards of local codes. 

You should also make any renovations that add value to help you attract more tenants and allow you to increase your rent (in turn increasing your overall net operating income) such as repainting the exterior, updating kitchen appliances, improving HVAC systems, or replacing flooring. 


Step #7: Create a property management plan.

The final step in the start of your multifamily investment journey is to create a property management plan for your new asset to maximize your ROI.

A reliable property management plan will ensure you collect rent on time, attend to maintenance issues in a timely fashion, and keep your tenants satisfied. 

The decision you’re left to make is whether you want to manage the property yourself or hire a property manager (or property management company) to take on the responsibility for you.

If you decide to outsource the job, your property manager will actively run the property for you by handling leases, managing tenant issues and evictions, organizing maintenance and repairs, and monitoring the functionality of utilities. They are also responsible for tenant placement and actively marketing units that are available for rent. 

If you’d prefer to be more hands-on with your investment, you can manage the property yourself and take on all the day-to-day responsibilities of managing tenants. There’s no right or wrong way, it depends on your personal preference, but remember that property management requires a lot of time and attention. 


Learn more:
Property Management 101: Doing It Yourself vs. Hiring a Property Management Company


Enjoy the benefits of your investment!

Once you’ve completed all of the steps above, you’ll officially be a multifamily property owner and well on your way to investment success in no time!


In need of support during the multifamily investment process? 

You’ve come to the right place! At 100Units, our team of expert multifamily investment advisors can provide you with the insight and support you need to secure the best multifamily investment property for your money.

After taking the time to determine your needs before identifying properties that can be considered for potential acquisition, we analyze market conditions, trends, and local competition to propose the best initial and counteroffers. From sourcing real estate investments and opportunities to protecting your financial interests during contract and closing, our team will work on behalf of your interests and get you the best results for your investment.

Once you’ve secured your property, our partnerships with reputable property management companies and other vendors can give you the comprehensive solutions and services you need to run your properties successfully.


Contact us today to speak with one of our highly-qualified investment advisors to get started or browse our current selection of properties for sale in Florida. 


Get the most from your multifamily investment!

Explore our resources for free videos, e-books/checklists, and more. To stay informed on all things multifamily, you can also follow us on Facebook and LinkedIn.


Source:
1: CBRE | U.S. Real Estate Market Outlook 2022 – Multifamily