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Real estate investing is appealing to many investors because it has the potential to be a lucrative venture. Real estate has historically demonstrated the potential for long-term appreciation, making it an attractive option for those seeking to build their wealth.
Beyond property appreciation, real estate can also be a source of cash flow for real estate investors through rental income. Owning and leasing out residential or commercial properties gives investors a steady stream of passive income. In many cases, cash flow strengthens as you pay down your mortgage and build up your equity. [1]
Additionally, real estate investors can benefit from the numerous tax breaks and deductions such as depreciation and the reasonable costs of owning and operating a real estate property. [1]
Unlike other investment vehicles such as stocks and bonds that tend to be volatile, real estate properties are a lot more stable. However, it can still be influenced by factors like population growth, economic development, and demand for housing and commercial spaces. This is why it is important to find a property that will generate a profit.
For those who are interested in apartment investing, here are some tips to help you in your search.
Research the Market
Real estate investing can be a rewarding enterprise, but finding your first investment property can be a daunting task, especially if you are a first-time investor. But the first step is to research the market. Before you can focus on finding the ideal rental property, you need to look at rental prices in the area you are interested in. You can then compare them to the cost of purchasing a property.
Thorough market research is essential to make informed investment decisions. Look into real estate market trends, including property values, rental rates, and demand in your target area.
Property taxes, for example, can vary widely across your target area. Having high property taxes is not always a bad thing as it may indicate that the property is in a great neighborhood that attracts a lot of long-term tenants. Just keep in mind that unappealing locations may also have high property taxes. Investors may either talk to homeowners in the community or ask for the tax information from the municipality’s assessment office. [2]
A comprehensive understanding of the market will empower you to make strategic decisions, ultimately increasing your chances of finding a profitable real estate rental investment.
Consider the Neighborhood
When assessing potential investment properties, investors should not only focus on the rental properties themselves but also their location. The neighborhood in which a rental property is located plays a pivotal role in determining its long-term success and profitability.
Analyze the different economic indicators such as employment rates, crime rates, population growth, and the job market. This will allow you to gauge the stability and potential for rental demand.
Examine the neighborhood’s amenities. Being located near schools, parks, restaurants, gyms, movie theaters, public transportation and other important establishments can significantly influence property values. These amenities add appeal to potential tenants. [2]
Factors such as safety, accessibility, and proximity to amenities can influence a rental property’s desirability. It also helps to assess the demographic trends, vacancy rates, and economic stability of the area. This will paint a picture of a property’s potential for appreciation as well as the sustained demand for rental housing.
A thriving neighborhood with a strong sense of community and positive growth indicators is more likely to attract responsible, long-term tenants.
Calculate Potential Expenses
Calculating potential expenses is another important step because it will narrow down your choices for a rental real estate investment. This process involves estimating all the costs related to owning and managing a property, so you can see if the rental income can exceed those expenses.
Start by looking into fixed costs such as property taxes, insurance, and mortgage payments. Next, take a look at the variable costs like maintenance, repairs, and property management fees.
Investors must also account for potential vacancies by setting aside funds for periods when the property might not be generating rental income.
The costs will vary depending on the type of property you are investing in. For example, a single family real estate property is generally more affordable than a multifamily real estate property such as an apartment complex. It is therefore easier for a lone investor to acquire and manage a single family property.
However, since a single family rental property only has one unit, it can only hold one tenant, and therefore the cash flow will stop if that tenant leaves. On the other hand, multifamily properties are generally more expensive. They are harder to acquire, operate, and manage. But since there are multiple units generating rental income, your cash flow is not severely impacted by vacancies.
By thoroughly assessing these expenses, investors can determine the property’s cash flow potential and make informed decisions about its profitability. This comprehensive approach allows for a realistic evaluation of the investment’s financial viability.
Look for Properties with Potential for Improvement
Real estate properties that require some work may be more affordable to purchase, but they also have the potential for a higher return on investment. When searching for a profitable real estate rental, it can sometimes be advantageous to focus on properties with potential for improvement.
Look for properties that need cosmetic updates or minor repairs that you can easily handle. Prioritize homes or commercial spaces that could use some upgrades or renovations—this will give you the opportunity to add value to the property.
By increasing its value, you may increase its rental income potential and attract higher-paying tenants.
When going for this approach, you still need to choose properties in desirable locations. From there, you can start searching for properties that are currently undervalued because of their condition. Factors such as outdated interiors, neglected landscaping, or inefficient layouts can easily be improved through renovations.
Some real estate investors add value by addressing the property’s existing issues, modernizing kitchens and bathrooms, enhancing its curb appeal, and optimizing space utilization.
This strategy not only positions the property for long-term appreciation but also offers immediate returns through increased rental income.
Real estate investors should also keep an eye out for future development in the neighborhood. Improvements in the neighborhood will impact the properties within. Ask the municipal planning department for information on developments and plans for the area. If there is a lot of construction happening in the area, it is a reliable sign of growth. [2]
Consider Hiring a Property Manager
Managing a rental property can be time-consuming and stressful. If you don’t have the time or desire to handle a real estate property’s operations, you may want to consider hiring a property manager.
They can handle important tasks such as marketing the property, finding and screening tenants, negotiating leases, collecting deposits and rent, reporting tax, communicating with tenants, and handling maintenance requests. A property management company will also take care of the day-to-day operations of the rental property. [3]
By entrusting these responsibilities to a skilled property manager, landlords can free up their time and ensure that their investment is in capable hands. The expertise of property managers can help minimize vacancies, reduce turnover, and handle any issues that may arise with tenants.
While this will be an additional expense, it can save you a lot of time and energy. You can focus on other things that matter to you, without worrying about your investment’s profitability.
Real estate investors should weigh the potential benefits of working with a property manager. If you acquire a multifamily property, the strong and consistent cash flow may help cover the costs of hiring a property management company.
Consider Real Estate Syndication
Real estate investing can be potentially lucrative, but it also takes a lot of work. Developing a long-term strategy and then finding a rental property to help you execute it is just the beginning. And while real estate investing is generally safer than other investment strategies, it takes even more work to improve your chances of a profitable investment.
While no investment is without risk, there is a way to invest in real estate without all this effort. Real estate syndication is an investment strategy that is available to accredited investors who want a passive investment.
Real estate syndication involves multiple investors pooling capital together in order to buy and manage a single real estate property. [4]
This type of deal can be done with any type of real estate, but multifamily syndication is the most popular among investors due to the strong and predictable cash flow offered by these larger properties. As we mentioned earlier, apartment communities and condominiums are not severely impacted by vacancies. This means multifamily properties can generate a strong cash flow through monthly rental income.
Multifamily properties are also riskier and more difficult to acquire for a lone investor. Even accredited investors with their high net worth may think twice about purchasing these properties alone since they can easily cost millions of dollars. However, multifamily syndication makes it more accessible by splitting the capital among multiple investors.
The real estate syndication process involves a syndicator, also known as a sponsor, who is an experienced real estate professional or company. Their job is to identify the investment property, put the deal together, create a business plan, and execute it accordingly. As the general partner (GP) in the deal, the syndicator takes on most of the responsibilities in this investment. They are the ones who will look for investors who will participate in the syndication. [4]
A skilled syndicator can identify the best potential real estate investments in a certain area, so investors should work with a trustworthy company with a reliable track record.
The investors, who act as limited partners (LPs) in the deal, take on a passive role in this investment. They will be the ones providing most of the capital needed to acquire the property. They will also pay certain fees to get the investment going. However, they have no other responsibilities beyond that. [4]
Accredited investors receive a share of the profits generated by the property. They may also earn a share of the equity upon resale, but this depends on the deal structure. Every syndication deal is different, and investors still need to do their due diligence by analyzing the syndication agreement and the profit split carefully before participating in a syndication.
It is worth noting that the syndicator also handles property management once the deal is in place. This makes multifamily syndication a true passive investment in real estate. Accredited investors who want passive income while diversifying their investment portfolio should consider joining a syndication deal.
Most syndication deals are exclusive to accredited investors. These are investors who fit the criteria set by the US Securities and Exchange Commission (SEC). This means they have the financial sophistication and investing experience to participate in unregistered deals and investment opportunities like multifamily syndication. [4]
If you are an accredited investor and your goal is to generate passive income in real estate without the headaches of being a landlord, multifamily syndication may be the right choice for you.
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
A trustworthy syndicator is important because they will be making all the decisions in the syndication deal. So accredited investors should not just look at the investment properties being offered, they must also look into the syndicator’s track record.
BAM Capital is known for its consistent track record for excellence. This Indianapolis-based syndicator has a strong Midwest focus, and more importantly, a reputation as one of the leaders in its industry.
BAM Capital prioritizes multifamily properties that are Class A, A-, and B++, particularly those with in-place cash flow and proven upside potential. Accredited investors love BAM Capital’s award-winning strategy that mitigates investor risk while creating forced appreciation. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [5]
As a vertically-integrated syndicator, BAM Capital can handle every step of the syndication process. They will guide you through the entire syndication journey, from acquiring high quality multifamily properties to managing and renovating them. [5]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
Sources:
[1]: https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp
[2]: https://www.investopedia.com/articles/mortgages-real-estate/08/buy-rental-property.asp
[3]: https://study.com/academy/lesson/the-role-of-property-management-in-real-estate.html
[4]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
