An Investor’s Guide to Multifamily Rental Properties

An Investor’s Guide to Multifamily Rental Properties

When considering acquiring a real estate property, investors tend to shy away from multifamily rentals as they also tend to come with more upkeep and a higher initial investment. The truth is, multifamily investments are lucrative for a good reason, and when managed properly they don’t require significantly more work than a single family home. The key lies in doing your research so you can better understand the multifamily rental market, and also performing due diligence as you search for opportunities and manage the investment. When you incorporate these things, you will find that investing in a multifamily rental is one of the best financial decisions you can make. Continue reading for an investor’s guide to multifamily rental properties.

Residential buildings with dollar prices and calculator

Understanding Multifamily Investments

Multifamily rentals have a few distinct characteristics that make them very attractive to investors. Although they do come with higher initial costs, multifamily homes cash flow very well each month, and they also come with healthy cap rates due to multiple sources of rental income. Multifamily properties also tend to be very safe investments, and they typically hold their value or continue to grow even in economic downturns. There will always be consistent demand for housing and that helps keeps their prices up.

As a rental property owner, you may benefit greatly from the advantages multifamily homes can provide. You can make use of economies of scale when maintaining and resupplying your rental units, and also when making updates and renovations. There are many multifamily investors who opt to hire property managers that can fill vacancies and take care of day-to-day operations, effectively turning their investments into passive income.

Key Consideration for Investors

Before you dive into a multifamily investment, you will need to have a good grasp on what makes a rental property successful. In real estate, location is always one of the most important factors, and you can benefit from taking the time to research multiple markets and comparing their potential. Some key indicators to take a look at include population growth, property values, rental demand, and the health of local job market. A multifamily rental property is more likely to net a good return if you choose to invest in a market where these numbers are headed in the right direction.

When it comes to financing your property, you have a few options to choose from, but know that sometimes multifamily property loans come with different terms. For example, many lenders offer 10-year terms which are not often found with single family loans. Working with a bank or credit union can be a good way to secure a low interest rate, but these loans also come with strict criteria and a lengthy application process which is not always ideal. You may also choose to work with a private lender, who can offer you more customizable loan terms and less stringent loan criteria. If you are looking to finance an older or neglected property, and you plan to make renovations to increase its value, a private loan will be the best option for you.

Market Trends and Opportunities

With a multifamily rental property, there are many opportunities available to investors that are willing to take the time to look into them. We already mentioned the potential for appreciation these investments have, and how researching and comparing markets can benefit you greatly. Another good strategy involves renovating your property over time, which allows you to add value and increase rental rates. If one of your rental units becomes vacant, it also makes the perfect time to perform these renovations.

Mitigating Risks and Maximizing Returns

Of course, there are also some risks you need to be aware of with a multifamily property. Staying on top of these things helps ensure you have a smooth time managing your investment. First, you should create a thorough tenant screening process that includes a credit check and speaking with any of their previous landlords, if possible. Your lease agreement should also be comprehensive, and it’s where you will establish all your specific policies. This will help protect you in the case of any legal disputes.

You should consider incorporating technology to make managing your investment even easier. There is tenant management software available that allows you to easily keep in touch with your tenants, collect rent, and even send out notices and announcements. You can also keep track of income and expenses in the software, which proves incredibly useful come tax season. Not only does technology simplify managing your investment, but it also improves tenant satisfaction, and the likelihood that they will continue to stay at your property.

RCN Capital

The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. 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. Are you looking to purchase or refinance an investment property?