As 2021 comes to a close, many investors are looking for new opportunities to begin the new year with. Many once-effective investment strategies have become obsolete as the COVID-19 pandemic has caused massive changes to the economic world but investing in real estate remains a reliable source of income.
Investing in multi-family real estate, in particular, offers many lucrative opportunities to both new and seasoned investors. While purchasing multi-family properties is often more expensive than purchasing single-family properties, the return on investment is more than worth it.
Since a multi-family development houses multiple tenants, it provides investors with multiple sources of monthly income rather than a single source. The presence of multiple tenants also makes it much less likely that you will ever suffer from a cash-draining vacancy, which is a huge risk of single-family homes.
Tips For Investing in Multi-Family Real Estate
Once you’ve chosen to invest in multi-family properties, there are a lot of factors to consider before settling on the property you want to begin with. Here are some of Catalyst Capital Partners’ best tips on how to invest in multi-family real estate:
Consider the Location
If you want to make a profit off of your investment, you need to be investing in multi-family properties in areas where people want to live. As with all forms of real estate, location is the key to success.
Start by searching for multi-family properties in desirable neighborhoods. A neighborhood that is safe and clean with good schools, many eating and shopping choices, and convenient access to major roads and transportation options will always attract tenants.
It’s also important to examine the population growth rates of the area you’re investing in. If the population is steadily growing, it’s probably a safe investment; if the population is steadily declining, you’d be better off looking elsewhere.
Weigh Costs Against Income
Investing in multi-family properties can be very expensive so it’s important to make sure that your investment will actually turn a profit. The initial cost to purchase the property isn’t all you need to consider. You should also calculate the cost of any necessary repairs or maintenance, utilities for the building, and any additional service fees to determine how much your real estate investment is actually going to set you back.
Once you know the cost of investing in a multi-family development, now you need to calculate your monthly income. Take the cost of renting a unit in your multi-family property and multiply it by however many units you have available for rental to find out your potential monthly income. Add in any other fees you will be charging your tenants, such as parking costs. Keep in mind that you may not fill up every unit immediately.
Now you can compare the cost of your investment against the income that it will generate to determine whether you are making a wise financial decision. When investing in multi-family real estate, it’s good to rely on the “50% Rule.” You can safely estimate the cost of your monthly expenses to be half that of your monthly income.
Choose the Right Number of Units
Our final tip on how to invest in multi-family properties is to select a property with the right number of units. Multi-family real estate can refer to anything from a duplex, which contains only two units, to an apartment building with hundreds of units.
If you’re a novice investor, it’s probably best to start small. A property with less than ten units is a much cheaper investment than a high-rise apartment building. Filling all of your units will be easier and, should your property fail to be profitable, your losses will be less significant.
On the other hand, the more units a multi-family property has, the larger the potential income. If you’re a veteran investor who can afford a “high-risk, high-reward” gamble, you may be better off investing in a larger apartment building where you can generate more monthly income.
Multi-Family Real Estate Opportunities in the Southeast
Catalyst Capital Partners is committed to creating premium multi-family real estate opportunities for developers and investors in the Southeastern United States. If you have questions about how to invest in multi-family properties in the Charlotte, Raleigh or Nashville metro areas, contact Catalyst Capital Partners today!