Challenges to Overcome When Investing in Multifamily Properties

There’s a wide variety of reasons why investing in multifamily real estate is a great way establish steady cash flow. However, new investors often rush in without taking the necessary time to educate themselves. Like anything else, multifamily investing requires knowledge so that you don’t make critical mistakes. If investing was easy, everyone would be doing it— and in a marketplace full of deals, the key to success is understanding the business, and the path to overcoming common challenges.

High Level of Competition

Multifamily properties tend to draw interest from more experienced investors. This can fuel intense competition for multifamily property, shutting many novice investors out of the market. Experienced investors are often able to pay cash and are willing to waive all purchase contingencies (ex: inspections) which make their offers, even at a lower price point, more appealing to some sellers. First-time investors can benefit from partnering with more experienced investors as they begin to learn the ins and outs of the multifamily property market.

Management Intensity

Although you are able to outsource property management, that doesn’t mean that the process isn’t intensive. Investing in a multifamily property means dealing with several individual leases, different tenants with various repair/maintenance requests, tenants who prefer to communicate in different ways, pay their bills differently, etc. That being said, when comparing management intensity of residential property types, managing multifamily property can be considerably simpler than managing a wide-ranging portfolio of single-family rentals. Of course, there are efficiencies that come with managing a single multifamily asset, including the option to hire an on-site property manager, depending on the size of the property.

Relying on Future Appreciation

Avoid falling into the trap of assuming the future when you are buying property. Seasoned investors will tell you their philosophy was to acquire a property under value, hold it for a certain amount of time, and then sell it years later after its value appreciated. However, nobody can predict appreciation, and if you hold a property waiting for it to happen, you may be holding it for longer than expected. Sure, this approach may be beneficial when the market is hot and values are rising, but nobody can tell when the market will turn around and the appreciation you were banking on goes out the window.

Of course, this is not to say that appreciation shouldn’t be taken into consideration. Ideally, you should be conservative and expect to sell the property in a down market—if the numbers work when you sell in a down market, it’s a strong indicator that the deal is worthwhile. Simply, if you’ve based your investment on a hope or feeling that it’s going to appreciate, you may be headed for failure. Base your decision on the numbers, and on cash flow.

Limited Availability

Let’s face it, multifamily properties don’t hit the market quite as often as single-family investment opportunities. There are fewer of them, and they’re usually held for a long time (since they’re such good investments). Many investors who are trying to break into multifamily real estate find that it takes longer than they expected to discover an investment property worth starting with.

Changing Regulations

Every landlord faces regulations regarding how a property can be rented. Investors who own multifamily properties face evenmore regulations. Before investing in a property on your own, make sure you understand local, state, and federal regulations regarding multifamily properties.

Tenant Retention

Tenants are the fundamental life line of a multifamily project. An investor’s ability to strategically market the property to attract and retain tenants is crucial to the success of the project.Understanding the competition and creating a unique product is vital.

RCN Capital

RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners throughout the country. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. If you're an investor looking for financing for apartment investing, RCN Capital has competitive loan options available.Connect with us today to discuss your next multifamily loan deal.