Many investors are upgrading to multifamily property investments. What’s behind the trend? What do you need to know when you make the move?
The Move to Multifamily Apartment Investing
Numerous residential real estate investors, and even retail and office investors are moving into the multifamily space. For some, it is simply about matching the future of their investments and desired performance with evolving market trends. For all, this graduation to the next level really all boils down to the benefits of the economies of scale.
Single-family home investing no longer offers the value it once appeared to. Other forms of commercial property appear to have peaked. There is no longer such a great need for the pure office or retail space. Multifamily properties and to some extent mixed use is far more resilient. We’re adding more renters to the economy than ever. Rental apartments can benefit both when the market is growing and during tighter real estate and economic times.
Even savvy investors who have done well in single-family homes can’t ignore the advantages of apartment buildings. They offer better diversification, lower ratios of expenses to income, and are far easier and more efficient to manage.
So, what do you need to know when stepping into the multifamily investment space?
1. Stay Objective
Apartment buildings can be incredible cash cows. Remember you won’t be living there. This is a pure investment. Focus on the numbers, not the looks.
2. Find the Right Professionals to Help
You’re going to need great property management, and perhaps better professionals to help with maintenance, contractor work, landlord-tenant law, and accounting. Make sure you have experts on your side that can handle the volume and are pros in this space.
3. Understand What’s Different and Not
Many investors hold back and sacrifice the benefits of multifamily because they fear it is harder and more complicated. There are some differences from buying a regular home, but once in many find this a much easier asset class to operate in. It’s all about knowing what is and isn’t different.
Specific differences may include:
- Valuation (based on income and NOI, not comparable sales)
- The types of tenants you may be dealing with
- How utilities are handled
- Need for environmental reports in addition to traditional appraisal
- Types of lenders you will deal with
4. Capital Reserves
Repairs and high percentages of vacancies can require more cash in this space. However you invest, you want to know that some cash reserves are set aside for emergencies and budget shortfalls, and how much if any exposure you have to future capital calls.
5. An Eye for Value Add Improvements
The most profitable multifamily opportunities are typically in distressed and underperforming buildings. Yet, even in A Class buildings, there are always opportunities to add value to your assets and enhance profitability and returns. Gain a good eye for this, and learn to look beyond the surface. This can include branding of the building and how it is marketed, the amenities offered, how efficiently it runs, ability to expand leasable space, and improvements in property management and leasing.
It’s all about how much you keep and can keep compounding gains on for the long term. Buy and hold investors seeking yield and wealth building may specifically want to explore using 1031 exchanges and self-directed IRAs to minimize taxes on gains and maximize their upside potential.
ABOUT THE AUTHOR
Bill Zahller is the President of Park Capital Properties and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Properties in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalProperties.com for more information.