Multifamily real estate investment has been a popular and proven strategy for building a successful financial CRE investment portfolio. It has consistently shown higher returns compared to the stock market, and if done right, can provide a steady stream of passive income and long-term financial stability.
Although there are various ways to make money in Multifamily commercial real estate investing, if you’re looking for a less risky commercial real estate investment opportunity that generates strong cash flow, these multifamily investing tips could propel you to the next level.
Note: Covercy is the first end-to-end multifamily syndication platform that integrates with banking partners for instant distribution payments & capital contributions from LPs. Covercy is free for GPs with 2 assets or fewer. Give Covercy a try today.
Get Complete Insights About Multifamily Real Estate — Right Now
Multifamily real estate properties are a solid avenue for wealth — and with a number of markets seeing outstanding growth over the past year, this strategy is one that’s too good to pass up. Our guide to multifamily real estate investing tips is your first stop to realizing your investment goals — whether you’re already an experienced commercial property – CRE investor or are just beginning to explore your commercial investment options.
What is Multifamily Real Estate Property?
A multifamily real estate property is a type of residential real estate building that accommodates more than one family or household unit. The defining characteristic of multifamily real estate properties is the presence of multiple housing units, each with its own kitchen and bathroom facilities.
Apartment buildings or apartment complex properties that have multiple units are the most common form of multifamily real estate investment property. These structures vary in size, from small duplexes to high-rise apartment buildings with hundreds of units.
Real estate investors often target a building with at least five units for multifamily property investment. Such type of commercial real estate building is considered a commercial property instead of a residential property, requiring commercial loans instead of residential mortgages.
Why Now Is a Great Time to Consider Multifamily Real Estate Investment
Multiple economic factors in key markets have made multifamily properties more appealing to a wider audience than ever before, and it’s easy to see why. With long-term wealth creation potential, soaring demand for housing, and strong rent growth (12.3% year-over-year as of July 2022), this type of Multifamily real estate CRE asset stands out while others struggle. But in order to succeed, it’s important to carefully consider your multifamily investment strategy and complete knowledge about how to invest in commercial real estate properties.
Here, we’ll go deeper into several reasons why you should get involved in multifamily investing in real estate as well as risks and challenges you should proactively consider in order to make the most of your time and resources.
The Advantages of Investing in Multifamily Real Estate Property
Apart from long-term wealth creation, multifamily property investing brings a number of other benefits — just some of which include:
- Tax advantages — As a multifamily commercial real estate investor, you may be able to take advantage of a number of tax benefits. These include depreciation, management expense deductions, cost segregation, and more. (Note that you should consult your own tax advisor for guidance before investing in CRE properties.)
- Stability — Multifamily real estate properties are a relatively stable asset class as compared to industrial properties — particularly useful in today’s market. Due to the significant housing shortage, multifamily properties will continue to see strong demand for years to come.
- Easy entry — You don’t necessarily need years of experience and significant financial acumen to get started in multifamily real estate. That said, there are some common pitfalls that many real estate investors new to the world of the commercial real estate market should make. Overall, a multifamily real estate investment strategy is a fairly low barrier to entry.
Potential Challenges in Multifamily Real Estate Investment Strategy
While the advantages of multifamily real estate investing are many, so too are the potential risks when the investment strategy isn’t planned early and managed efficiently once the deal closes.
- Management — It’s important to determine whether you’ll be managing the property yourself or if you need to work with a property management company (PMC). If you do the latter, working with a proven, experienced company that you trust is crucial for a higher return on investment.
- Raising capital — You will likely need to conduct fundraising up front in order to raise the funds needed to secure financing to buy the property. You’ll need other Multifamily real estate investors to work with and will need a solution to manage distributions and other financial details on a pro-rata basis.
- Overreaching — This one is important and is a common multifamily real estate investment mistake. Many investors who are new to investing in commercial space make poor investment decisions to get a property with a couple of hundred units when they should have purchased a smaller property with which to build experience. Going too large too quickly will result in you being overwhelmed and tend to have higher chances of potential issues with tenants.
- Your role — Remember that investing in multifamily real estate properties is about more than the investment itself. You’re also taking on people’s livelihoods. Your tenants will depend on you to keep their homes safe and in good working condition. They expect you (or your PMC) to be responsible, accountable, and available.
Find other potential pitfalls: Download your free copy of the multifamily investing tips guide here.
Success Tips for Multifamily Real Estate Investing
- Never be satisfied — Always strive to be a better, more informed, and supportive investor. You’ll build stronger relationships with your tenants and partners and will realize more success in the long term.
- Pressure test yourself — Multifamily real estate investments require your time, attention, and resources. Make sure that you’re ready and able to take on this responsibility before proceeding.
- Start conservatively — Again, don’t bite off more than you can chew. Strive to meet your ROI expectations in a manageable way and scale up when you’re ready and able to do so.
- Always add value — If you’re considering a multifamily real estate investment strategy purely for wealth creation, you likely won’t see success. Always seek to add value such as renovation, to increase the market value of a property for your partner investors, your tenants, and your team if you have one. This strengthens relationships and can lead to greater participation from other investors in the future.
Invest In Multifamily Real Estate with Confidence — and with Covercy
Covercy is a commercial real estate (CRE) investment management platform designed specifically for GPs and investors with moderate asset portfolios (think 10-20 assets). Our platform provides the technology investors need to maximize key functions such as fundraising, investor relations, automated distributions, and even banking.
With all of these capabilities, GPs are able to accomplish more, add more value, and better understand the long-term performance of their assets — without the administrative hassles often associated with CRE investing. And it’s ideally suited for investors looking to grow their portfolios through a multifamily real estate investment strategy.