What Brokers Should Know About Multifamily Rental Investing

The real estate investing landscape remains highly competitive, with rising interest rates affecting deal margins and the nationwide housing shortage still limiting availability in many markets. However, one type of asset has remained stable through this period of uncertainty, as it always has, and that’s multifamily property. Multifamilies are sought after for their strong income and equity building potential. For brokers and lending partners, they present an opportunity to provide more value to clients. Understanding this asset class along with your clients’ strategies and long-term goals helps you become an important part of their investing team, often leading to more business.

Continue reading as we explore the key concepts every broker should know to become an expert in the multifamily space and how offering multifamily financing programs helps you grow your lending business.

Key Takeaways:

• Multifamily properties can provide investors with multiple income streams and a scalable approach to portfolio growth.
• Brokers should understand key metrics like cash flow, NOI, cap rate, and DSCR when discussing multifamily deals.
• The right financing strategy should align with the investor’s plans for the property and their long-term goals.
• Helping clients evaluate deals and financing options can position brokers as valuable long-term partners.
• Multifamily clients can create future opportunities as their portfolios and financing needs evolve.

Understand Why Investors Choose Multifamily Properties

Multifamily investors tend to be more focused on cash flow and long-term growth than your typical real estate client. The main reason they’re drawn to these properties is because they can acquire multiple income-generating units in one transaction. This allows investors to rapidly scale while also benefitting from the economies of scale and reduced occupancy risks that come with multifamily properties. Plus, owners can make use of deductions and depreciation to lower their overall tax burden and further improve returns.

These qualities are what make multifamily properties such stable investments. It means they remain highly desirable even in market downturns, and this improves their equity building potential as well. Understanding these motivations can help brokers have better conversations about a client’s overall investment goals and make smarter decisions that are more aligned with their strategies.

Know the Metrics That Drive a Multifamily Deal

Brokers should have a good understanding of the metrics commonly used by real estate professionals to evaluate multifamily properties. Being familiar with these metrics allows you to make more accurate estimates for maintenance & expense costs, and it helps you compare different properties to make better recommendations to clients. Luckily, many of the same metrics for single-family and DSCR investments also apply to multifamily deals.

• Cash flow refers to what remains each month after all expenses are considered. It serves as a quick and easy way to evaluate the health of a rental investment.
• Net operating income (NOI) is the amount of income a property provides each year minus operating expenses, but it’s crucial to note that it does not include debt service.
• Using NOI, you can calculate Cap Rate, which is the annual rate of return a property provides given its purchase price. It’s another great way to evaluate and compare properties, as well as determine the break-even point of an investment.
• Debt Service Coverage Ratio (DSCR) is the amount of income a property provides relative to its monthly financing costs. To lenders, this metric is crucial. They use this ratio to determine the financing capacity of a property and how reliably it can pay its debt obligations.

Match the Financing to the Investor’s Strategy

Your financing expertise can also help you provide investors with loan programs that are more suited to their specific strategies. When making these decisions, consider the investor’s income profile, their intended holding period, long-term goals, and any plans for renovations or refinancing in the future. For example, you may not want to recommend a DSCR loan to an investor that’s planning a major rehab project, at least not initially. They will likely be better off with a short-term bridge loan, a transitional financing structure that can fund both the purchase and renovations. Afterwards, they can move to secure long-term financing, and with the improved state of the property it’s likely that they’ll receive better terms.

Help Clients Perform Better Due Diligence

One of the biggest challenges investors face, especially if they’re new to the space, is how to properly evaluate a multifamily home. That’s why your expertise as a real estate professional is so crucial to them. Encourage your clients to take the time to research both local rental demand and comparable properties before moving forward with a purchase. You can also offer to review current rent rolls, leases, operating expenses, and the property itself to determine if there are any red flags. This can help establish you as a valuable resource on the investor’s team, and a partner they can turn to repeatedly rather than simply another source of funding. It not only helps you secure future business from these clients but can also lead to valuable referrals that get you working with new clients.

Turn Multifamily Expertise into Long-Term Client Relationships

As we mentioned, multifamily buyers are the kind of investors who are more concerned with steady income over time than short-term gains. They’re likely to continue growing their portfolios with future acquisitions, refinances, or renovations projects, and it means they can end up being some of your best clients. At the same time, not every broker specializes in multifamily investing, and offering these programs can help you differentiate yourself in a crowded lending space.

If you want to secure more business with multifamily investors and build lasting relationships with them, you should take a holistic approach to each client’s investing strategy. Take some time to learn about their long-term portfolio goals rather than treating each loan as an isolated deal. This way, you’ll be able to offer more relevant guidance that allows them to reach these goals sooner. After a closing, you should strive stay in regular contact with previous clients. A periodic check-in is one of the most effective ways to achieve this, but combining this with less formal methods like email newsletters and social posts allows you to stay top of mind and ensure your efforts do not go unnoticed.

RCN Capital

The lender you choose to work with can have a major impact on your client’s financing experience, so it’s important that you choose the right partner. RCN Capital has a proven record of providing financing to real estate professionals, commercial contractors, developers & small business owners across the nation. We offer short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you’re looking to offer better rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.