How Do I Start Multifamily Real Estate Investing

by | Apr 5, 2023 | BAM Blog, Multifamily Syndication, Real Estate Investing | 0 comments

For investors who want an additional source of monthly cash flow, rental property investing is one of the most popular investment strategies. The two main types of residential property used for rental property investing are single-family properties and multifamily properties.

Both single family homes and multifamily properties can help diversify an investment portfolio and bring a steady cash flow through rental income. Here we will focus on multifamily investing and its benefits for real estate investors.

For starters, multifamily rental properties are easier to finance. Although the cost of an apartment complex is higher than a single-family home, it is actually easier to secure financing for a multifamily property because banks know that these properties are very profitable. Multifamily real estate can generate a strong cash flow consistently. Therefore, multifamily properties are more likely to get approved by a bank for a loan than an average home.

Growing your investment portfolio also takes less time with a multifamily property. It is easier to acquire a 20-unit apartment building than it is to purchase 20 different single family homes in 20 different locations. The latter would involve managing 20 separate loans which can get confusing and difficult.

The fact that these properties generate such a strong cash flow even allows real estate investors to hire a property management company.

Although multifamily investing offers several advantages over single family homes, they are also not that easy to get into. A real estate investor without much experience may struggle to invest in their first rental real estate property.

How to Start Investing in Multifamily Real Estate

Multifamily investments may seem tricky, but it is much easier than you think. The key is to start small. Investors who do not have experience in handling rental properties should look into single family homes to get a feel for how rental real estate works. If you must go into multifamily investing right away, go for a duplex. Get some experience in the field, learn about operating costs, expected income, interest rates, mortgage payments, and other factors involved in single family real estate before moving onto a property with more units.

Starting small is the safest investment strategy for an investor who does not have experience in managing rental properties. Keep in mind that owning a rental property does not just mean enjoying consistent cash flow through rental income. It also means having to take on the responsibilities of a landlord. If you are not generating significant income, you won’t be able to hire a property management company. Managing apartment complexes is an even bigger responsibility.

If you want to get into multifamily real estate as soon as possible, do not jump straight into huge apartment buildings. Only experienced investors should have an apartment building. There are other types of multifamily properties for you to explore. [1]

A small multifamily property is more affordable, easier to finance, and easier to manage. If you only have two units to manage, this means you only have to deal with two tenants, fewer emergencies, and fewer concerns. This also means a smaller cash flow because you collect a smaller rental income compared to huge apartment complexes. But at least you can build up the experience needed to get into bigger properties with multiple units.

Learn More about Multifamily Properties

A few multifamily properties would look great on your real estate portfolio. But a smart investor will not just jump at the first opportunity they find. Before you put your money into a multifamily property, whether it is an apartment building or a simple duplex, you should first learn the ins and outs of multifamily investing.

Acquiring proper real estate education will go a long way. It can help you refine your investment approach as you select the best multifamily homes to invest in.

In fact, choosing investment properties becomes significantly easier once you learn more about the real estate business.

Let us begin with the basics: multifamily real estate investing is when an investor purchases a property that has more than one unit.

Multifamily homes are residential properties that have more than one unit that tenants can rent. Examples include duplexes, triplexes, townhomes, apartment complexes, and condominiums. [2]

These multifamily properties can be rented out to multiple tenants. Some investors hire property managers so they do not have to deal with the day to day challenges of managing multiple units. As you may soon learn, doing so can be very challenging if you do not know how to run an apartment building. [1]

You may find many different investment properties out there, but it is important to analyze your choices. Keep in mind that multifamily properties are particularly expensive so you want to make sure you are putting your money into something that can be profitable.

Investment analysis involves analyzing the real estate market as well as the real estate property itself. Start by learning about the location in which the property is situated, particularly the real estate market in that area. A well-located multifamily property with great amenities will rarely have vacancies, meaning it will likely generate a strong and consistent cash flow. [1]

Multifamily properties have plenty of pros and cons to keep in mind. Multifamily investments tend to generate more cash flow, making them a good choice for investors looking for a passive income. With multiple units, you also get a larger pool of tenants.

Multifamily real estate investing also helps you expand your investment portfolio.

Additionally, multifamily properties offer more tax benefits. Investors can usually write off most of the repairs and the interest on their mortgage payments, as a business expense.

However, no investment is perfect. Multifamily properties also have their cons. One of the biggest downsides of owning a multifamily property is that you need to take on the role of a landlord once you own an apartment building. This means you need to take care of the rental property, collect rent, deal with tenants, handle emergencies, pay for repairs, etc. [2]

This is a lot more responsibility than managing a single family property. This is why a lot of multifamily real estate investors hire property managers to help them with this aspect of the investment. Otherwise, this is a huge commitment that will take up a lot of your time.

Because multifamily properties are larger and have more units, they tend to be more expensive. A lot of newer investors will not be able to afford these real estate properties on their own.

Figure Out Your Multifamily Property Rental Strategy

Now that you know the basics, it’s time to figure out your multifamily investment strategy. You may want to consider all the real estate investment strategies available to you. Look at all the investment properties near you and identify the multifamily homes that are most likely to help you reach your investment goals. [1]

Figure out your investment goals. How many units you should go for depends on your current financial capabilities and investment goals.

Do you prefer a steady monthly income with a lower vacancy rate? Then a large multifamily unit such as an apartment complex may be able to bring in more money.

For those who want something that is easy to purchase even for a sole investor, a duplex may be a great choice. Meanwhile, some investors may be better off going for a single family property instead. But if funding a large multifamily property is your main concern, there is another option worth considering: multifamily syndication. We will discuss syndication and how it works later on. But this is an investment approach that solves some of the biggest drawbacks of multifamily investing.

Choosing the right investment property is the key to success when it comes to investing in multifamily properties and expanding real estate portfolios.

Identify the Best Locations for Your Multifamily Property

Knowing what kind of multifamily property you want to invest in is one thing. But identifying ideal locations for multifamily investing is another. The neighborhood in which your multifamily property stands is just as important of a factor as what type of building it is. When it comes to real estate investing, it is all about finding places that renters want to live in.

Just like any other type of real estate investing, multifamily investing is highly dependent on location. Most investors have already heard the mantra “location, location, location” in real estate investing. As common as this saying is, a lot of people don’t know what it means. The key takeaway is that location is very important when it comes to multifamily investing. [3]

When choosing a multifamily property to invest in, consider factors such as appearance, accessibility, and amenities of the neighborhood. Check its proximity to transportation, universities, shopping malls, recreational activities, cultural centers, shops, grocery stores, restaurants, parks, etc. See if the crime rate is high in that particular neighborhood. [3]

Take a look at residential properties in the area. Check if there are plans for further development in the neighborhood or area. A lot of these factors should give real estate investors an idea of whether multifamily properties in that neighborhood are worth buying or not.

Just like a single family home, neighborhoods can be good or bad investments. Even particular city blocks can be “good” or “bad” depending on the buildings and properties in them. When you invest in multifamily homes, you invest in their location. [3]

So how exactly does an investor choose a multifamily property based on location?

A “good” location is a matter of preference. Different places will appeal to different people. As a real estate investor looking for an investment property, you need to think like a renter. Families want to live in nice neighborhoods with easy access to great amenities. Working professionals want to be closer to transportation and job opportunities. Students may choose to live near their university.

However, a truly great neighborhood will be accessible, visually appealing, and have access to various amenities. You want a multifamily property that has easy access to roads and public transportation.

Once you’ve found an ideal location, browse for multifamily properties and real estate deals in the area. You can then start analyzing these properties for their potential return on investment. You will have to calculate capitalization rate for each prospective multifamily property on your list. This will allow you to conduct a comparative market analysis. [1]

Look for multifamily units that are well-located so that they will naturally attract tenants and ensure your cash flow.

Finally, choose your multifamily investment property and close the deal.

What is Multifamily Syndication and How Does it Work?

Investing in a multifamily property has several advantages. They can generate consistent cash flow through monthly rental income. Multifamily properties are more reliable than a single family unit with only one tenant.

But while a multifamily home can bring investors free cash flow, they can be hard to manage unless you hire property managers to do the job for you. Otherwise, this real estate investment demands your hands-on involvement.

Multifamily syndication solves this problem by giving investors all the benefits of multifamily investment properties, minus all the hassle of managing these multi family homes. This is a great real estate approach if you want to get into real estate investing but want a truly passive income.

A syndication deal is when multiple investors pool their resources together for the purpose of real estate investing. This can be done with any type of real estate property, but multifamily syndications are the most popular because these properties generate monthly income. Multifamily properties are also bigger and more expensive, meaning they are usually harder to obtain for single investors. A multifamily syndication means that a group of investors have pooled their money together to purchase a single asset such as an apartment building. [4]

In a syndication deal, a general sponsor or syndicator puts the deal together, locates the asset, and looks for passive investors to participate in the deal. The passive investors will provide the capital needed to purchase the property.

Multifamily syndication adds to your passive investment portfolio. The best part is that investors do not have to do anything other than provide the capital and pool their resources together. They do not have to manage the property because the syndicator is in charge of maintaining these multifamily properties. They may hire a third party company for property management, but in either case, the passive investors do not have to shoulder the responsibilities of property management.

In fact, in a syndication deal, all investors have to do is choose whether or not to participate. The syndicator does all of the work: from locating the investment property, to putting the deal together, to securing the financing for the deal, to negotiating with the seller, to completing due diligence, to collecting rental income, to distributing the cash flow amongst the investors. [4]

Passive investors are also called Limited Partners. They also earn money from the equity once the deal is done and the property is resold.

Work with BAM Capital for Multifamily Real Estate Investing

For investors wanting to get into multifamily real estate, there are plenty of strategies to potentially employ. But multifamily syndication offers a truly passive investment wherein investors do not even have to worry about the residential property they have purchased.

BAM Capital will help you enjoy the benefits of owning multifamily properties without the usual headaches associated with them. There is no need to run the apartment building or worry about property management because this is done by the syndicator itself.

BAM Capital works with accredited investors who would like to participate in real estate syndication. This Indianapolis-based syndicator has a strong Midwest focus, prioritizing multifamily real estate assets that are Class A, A-, and B++. [5]

BAM Capital uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication while mitigating risk.

With its vertical integration strategy, BAM Capital creates forced appreciation. The result is a low-risk real estate investment for passive investors. In fact, BAM Capital currently has over $700 million AUM and 5,000+ units. [5]

BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Accredited investors can schedule a call with BAM Capital and invest today.