5 Tips for Multifamily Investing

Investors continue to choose multifamily homes, and it’s no surprise considering the many benefits that come with them. Everything from their higher income potential to their ease of financing mean that investing in these properties is a smart move. If you are considering purchasing a multifamily property for the first time, you might be wondering how to keep your investment profitable. You may also be struggling to find a property that fits your investment needs. But fear not, because we’ve compiled a list of tips to help you on your next real estate venture.

Tip #1: Set your financial goals before you buy

One of the first things you should do before investing in real estate is decide what you want the financial outcome of the investment to be. Are you looking to turn a quick profit? Look into home flipping and fixer-uppers. Do you want to hold the property for long-term passive income? Then find a home with units that can generate significant revenue. The idea is that certain homes will fit your investment goals better, and you won’t know what to look for if you don’t know your goals. Also, if it’s your first foray into the world of multifamily investing, you should consider a smaller 2-4 unit home before moving up to bigger properties.

Tip #2: Research the local market

If you’re planning to invest your time and money in a real estate property, but you neglect to research the area’s home market, you could be making a huge mistake. Knowing the average rent of homes in the same area as your property can help give you an idea of how much revenue it can generate. The same can be said for the selling prices if you are looking to flip the home. You will also want to ensure the property’s is in a neighborhood that is safe, and has access to quality schools and other establishments. If possible, you should go see the property in person. Finally, you should look into strong multifamily markets, like those near large or up-and-coming cities.

Tip #3: Crunch the numbers

If you really want to know if your investment will be profitable, and you’ve already done the research, then you can always just crunch the numbers. There are a number of metrics you can use including ROI (Return on investment), NOI (Net Operating Income), and Cap Rate but you will have to decide which one to use for your purposes. The ROI will be useful for finding your actual returns, but you need to make sure you’re using the correct numbers, especially when it comes to the renovation costs and fees associated with house flipping. NOI and Cap Rate will be useful for finding the profitability of a rental property, with a healthy Cap Rate falling in the 4-10% range. Anything outside this range will either not be very profitable, or will be considered too risky of an investment for most investors.

Tip #4: Renovate to increase profits

Want to increase the return on your investment even further? Then you should set aside some funds for renovating the property. This will lead to a higher market value on the home for flipping, but it’s even more beneficial for rental properties since it means a higher monthly revenue. If you want to make the most of your renovations, look for cost-effective upgrades with broad appeal. Essentially, nothing that could put a potential buyer off because of personal preferences. You should also focus your renovations on high-traffic areas like the kitchen and bathrooms.

Tip #5: Consider a hard money loan

Conventional loans may be useful for properties that you’re planning to occupy, but they’re not as good of a fit for investment real estate. While conventional lenders take your credit and employment status into consideration, a hard money lender will be more interested in the value of the property and whether it makes a good investment. This means you can be approved for a hard money loan even if you lack good credit, so long as your investment makes financial sense. The approval process for hard money loans is also much shorter, which is important for investment properties since we all know: time is money. If you’re considering investing in real estate but are having a hard time getting approved for a loan, you should look into working with hard money lenders.

RCN Capital

RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Connect with us today to discuss financing options for your next multifamily investment.