Multifamily Real Estate Investing: 3 Things You Need to Get Involved
Multifamily real estate investing can be very lucrative. It is a great investment. You can use it to create a large and stable monthly income. You can protect and grow your wealth with it. The properties can pay for their own expenses, upkeep, and to hire management to run them. And, on top of all those things, the economic market fundamentals favor the multifamily market continuing to pick up steam for the next five plus years. This means there is going to be rent growth and occupancy is pushing even higher. Everyone needs a place to live. Now is the time to be investing in multifamily real estate.
However, just because you want to be involved in multifamily real estate, it does not mean it’s easy to get involved. Multifamily real estate has a high learning curve and has high barriers to entry for a new investor. It’s definitely not easy to get started. In order to get involved in multifamily you need money, time, and experience.
If you have all three, you can contemplate going it alone. If you only have one or two, it’s time to consider partnering with others who have the aspects you do not. Anyone can take advantage of the strong multifamily real estate market, but depending on your situation you will need to consider how you want to be involved. Do you want to be a passive investor? Do you want to put the deals together? Do you just want to get a quick fee for finding high-quality deals? These are just a few of the questions you should ask yourself before jumping in.
Let’s take a quick look at the three requirements to get involved in multifamily real estate investing.
- Money – Multifamily real estate requires big chunks of equity or money to get involved. Gone are the days of “no money down” multifamily real estate. Tightening lending guidelines have made the good old days of “seller carry-back’s” or very low equity deals almost a relic of the past. Now, in order to get financing you need to be prepared to bring at least 25% of the purchase price to put down on the purchase. As the deal sizes get bigger, this can be a major challenge if you plan on going it on your own.
- Experience – Multifamily investment real estate can be a complex business. It requires an owner to understand maintenance, managing employees, tenants, management companies, accounting, and finance just to name a few. It can also have a steep learning curve. Lenders and even Sellers have gotten smarter about this over the years, making it harder for a new investor to get started. Lenders now require experience from the owner in owning “like-kind” properties. Sellers have even realized how much this affects a buyer’s ability to get financing and close on a property. This means, they are not always going to take the highest offer. They now take the highest offer from the most “qualified” buyer.
- Time – Finding, evaluating, and managing multifamily real estate can take a lot of time. From handling employees, move-in’s and move-out’s, maintenance requests, sifting through hundreds of opportunities, it can take a lot of your time.
Now that you know what it takes to get involved in multifamily investment real estate, it’s time to look at your situation and decide if it’s better for you to “go it alone” or partner with others who have the intangibles that you do not. For instance, if you have money to invest, but lack time or experience it might be best for you to join a private equity investment with an experienced partner. If you have time and experience, but lack the necessary equity, you will want to partner with someone who has the money, but not the time. If you are really good at locating deals, but have no desire to be involved in the ongoing operations, it might be best for you to form a relationship with those with the money or experience.
The multifamily real estate investment market is hot. Market fundamentals are extremely strong and projected to continue to grow for the next 5+ years. Now is the time to get involved. However, to go it alone, you must have the time, experience, and equity required for these large and sometimes complicated transactions. If you don’t have all three of these, you can still get involved through partnering with those who have what you do not. Whatever your situation is, you should consider getting involved before the market wave passes you by.