There are as many strategies for real estate investing as there are real estate investors. Most property owners are of the “one and done” variety—they have a home of their own, and they’re happy with that. But others, once they get a taste for it, require more.
Multi-family real estate is a great way to build your real estate portfolio. These income-generating properties offer the best bang for your buck, so to speak. They offer an easy way to pull in a greater number of renters (and thus, rental income) from fewer properties. That makes maintenance easier for you, the property owner. Plus, cities of all sizes have committed to building more multi-family units as a way to mitigate lack of inventory and to fill in the missing middle.
If you’re ready to take the next step with your real estate investments, we can help. Here are three easy steps for getting started in multi-family real estate.
Start Small
If you don’t think multi-family real estate is an option for you, it’s probably because you’re only thinking of giant apartment buildings. But multi-family real estate also includes mixed-use buildings, housing cooperatives (co-ops), townhouses, and condominiums. Basically, it’s any structure where units are adjacent with each other. Instead of trying to tackle the financials behind a 30-unit condo building, make your first investment a duplex or quadruplex instead. It will be easier to finance. It will be easier for you to manage. And it’s a great way to discover if property management is something you’re really passionate about without taking a huge risk.
Pick a Rental Strategy
Right now, everyone thinks short-term rentals are the key to raking in money. That may be true for some property managers, but that doesn’t mean it’s a given. If you’re looking for a steady income, a lower vacancy rate, and legal security, then you might want to consider traditional long-term rentals, instead. With long-term rentals, your occupancy rates will be more steady and won’t be subject to the whims of the tourist market. Plus, you’re less likely to see the kind of property cleanup and maintenance issues that come from a larger number of people cycling through the property. On the other hand, if you have the time to devote to continuously marketing the property and interacting with your short-term tenants, then perhaps an Airbnb would be a good fit for you.
Find Your 50%
Just like any business investment, it pays to understand your financial risks and potential gains before you take on any risk. Before purchasing any multi-family real estate properties, you’ll want to examine your potential cash flow and crunch the numbers. In other words, find the difference between expected income (rent payments, storage fees, parking fees) and expenses (repairs, maintenance, etc.). If you’re unsure how to calculate those numbers, one easy trick is to use the “50% rule.” Figure out the expected income of the property you would like to purchase. Halve it, and that number is your estimated safe income. The difference between your estimated monthly income and estimated monthly expense is your net operating income (NOI).
Start Your Search for Multi-family Commercial Real Estate
There are many advantages to owning multi-family properties. From ease of financing to the income they generate over time, multi-family CRE could be a great investment for you.
Getting started with multi-family real estate? Reach out to an NAI Beverly-Hanks commercial real estate agent today.