Making the transition to a different real estate investing niche is the equivalent of starting from scratch, in many respects. The basics of evaluating an apartment block are almost identical to evaluating smaller rental homes in a portfolio. However, the main difference is in the way that equity is acquired. Here’s how to start investing in multifamily properties successfully:
Finding a Mentor is Helpful — As Long as you Don’t pay too Much
If you are like most people, once you decided to invest in real estate, you searched online for seminars to attend. Frequently, these seminars are sales pitches for weekend training courses, which upsell high ticket mentorship schemes. Training courses can be an excellent way of meeting other investors. However, if you end up doubting yourself, or feeling as if you can only make progress by paying the course organisers, chances are you are being lied to.
It is better to find a genuine mentor, but unfortunately these people tend not to market themselves heavily, and some are not focused on training new investors. Undoubtedly, networking is the most effective way of finding a mentor and, when you do find one, there are two main ways to pay them. Firstly, you can pay a set fee to learn their investing wisdom. This works well, because the terms are clear and you can expect to pick up some useful information. Then again, the mentor has no financial motivation to help you succeed.
Another option is to partner with your mentor on your initial deal (or on several deals). This ensures that your mentor has an incentive to help you succeed, and your upfront costs will be low. Notwithstanding, such a partnership is likely to cost you more in profit overall, compared to if you had paid a set fee.
Make Sure you Know Your Figures
Irrespective of which real estate niche you invest in, knowing your figures is of paramount importance. Evaluating multifamily properties is the same as crunching the figures on a three family property, in terms of the overall cost per door. Of course, there are certain differences – for instance, cap rates and NOI (Net Operating Income) governs how valuable multifamily properties are, whereas comps are the deciding factor with small property values. The main thing, with all real estate investing, is to evaluate lots of deals to familiarize yourself with the figures thoroughly.
Leverage Your Experience
Even if you consider yourself a novice, you might have some useful experiences that other people don’t have. Someone who has closed twelve deals for single family rentals has more experience, in certain ways, than someone who has purchased a couple of multifamily properties with 150 doors. The mixture of your skills and past life experiences can, in some cases, be more valuable than your real estate experience (although that is helpful as well). The trick is to identify what you can bring to the table, then locate partners who require that expertise.
The Right Strategy
Suffice to say, your chance of success will be increased significantly with the right plan. Here’s some things that you should consider:
How to network — Decide where and how regularly you will meet other brokers and investors, etc. Think about what type of person you want to network with, then concentrate on meeting those people.
Team building — After you have networked with a few people, you need to choose the right people for your team. If possible, you should request referrals. For instance, ask a listing agent to hook you up with a good property manager.
Locating deals — Decide whether you will locate deals through your property managers or agents. Consider whether you want to scout or do mailings for them.
Financing deals — A JV partner is essential, if you and your network do not have the capital to finance deals. You will have to find brokers or lenders who will finance the debt portion too.
Brand building — You are your own personal brand in many respects. Always project an approachable, professional image so people will want to do business with you.
Assembling a Team for Multifamily Properties — Strength in Numbers
Here’s who should be in your team and the reasoning behind it:
A professional property manager — This person will be familiar with the costs and rents involved with running your properties. In addition, he or she will have good local knowledge and be aware of which parts of town are worth investing in.
Several listing brokers — Knowing a large number of listing agencies is highly beneficial, when investing in real estate (particularly with regards to multifamily properties). Make sure that their distribution lists have your name on them.
Mortgage lenders/brokers — Knowing where to get your loans is vital, so locate them early. Moreover, experienced brokers will analyze the figures, before you become too involved in a deal. This will save you money and time.
Obtaining Financing and Funding for Multifamily Properties
While obtaining a mortgage is important, equity is an often overlooked part of the jigsaw. Surprising as it may seem, many properties are owned by ordinary people. The majority of these people are not millionaires, however they have about $40,000 available to invest. They just club together as a group of investors to land deals. If everyone contributes $40k, it only requires twenty-five people to get $1 million together.
Speak to Relatives and Friends About Multifamily Investments
Let your loved ones know what you are doing, however do not pester them for money. They might know of others who are looking for a good investment, and be able to introduce you to them.
Speaking to Other People About Multifamily Investments
If you are not already well connected, you will have to persuade other people to participate in your investments. New contacts can be made virtually anywhere — be it in a fast food restaurant or at a networking conference. Tell people about your work in general terms, but do not talk about specific deals until you know them better and have spoken to them several times.
Take heed of the above advice and you will be well on your way to finding a good multifamily deal and the cash flow that comes with it!