Step by Step Guide: How To Start Investing In Multifamily Properties

Just the thought of investing in an apartment building can be overwhelming to most. And often, this type of investment isn’t even considered because of a lack of large down payments, knowledge, resources or a combination of all three.

The “go to” type of real estate investing made popular by DYI shows seems to always land on the “fix and flip” of single-family homes. However, these shows never really expose the true headache and costs of those investments.

Further, with the current rising costs of materials and labor as well as low home inventory and a large demand for those properties, it is becoming tough to compete in the purchase. Even if you have the cash to pay full price, often you are paying over full price. Cash now doesn’t guarantee a discount any longer.

So now is a great time to consider investing in apartment buildings or multi-family units. In other posts we have talked about the benefits of owning multi-family units over single-family homes or other assets. We have also touched on how you can build wealth with this type of investment. But until now, we haven’t really given a step by step on how to get started. Here is your how to:

Step One – Education and Mentoring

First, if you have never owned real estate before and perhaps not familiar with the process of investing in real estate, you want to make sure you educate yourself on the process and the ins-and-outs of investing in a particular asset.

As part of your education, you'll also want to make sure you have some experience by your side.

In most cases, this experience comes in the form of a mentor.

There are real estate investors in almost every area that are willing to mentor. The best way to find them would be to talk with a trusted real estate broker or mortgage lender who specializes in real estate investments.

Ask for referrals from friends, family or co-workers but be sure you specify you want someone that works in the investment arena. Another great resource would be talking to your financial advisor, real estate attorney or CPA. They often have a network of professionals in this area. And if you are considering joining a syndication, reach out to these folks for a syndication mentor. Right now, you may not be ready to determine whether a traditional or syndication investment is best, so get information on both!

And if all else fails in securing a mentor, start researching apartment building owners. Find an area you are interested in and locate the apartment buildings that catch your eye. Property ownership is public information.

You may find that a company owns the property but a quick search on the Secretary of State website can show you who the registered agent is. These records usually show an address. Start there and do some sleuthing. It is a little more work but often the effort is worth it!

Step Two - Resources

Now, you really need to take inventory of your resources. You need to consider your current cash position as well as your net worth and liquidity. Determine whether your cash holdings will allow for a 20-30% down payment along with reserve funds for vacancies and maintenance.

You may want to talk to that real estate broker or traditional lender referral and see what you can qualify for in the beginning. Once you to determine whether you have a large enough down payment… or not… then you can decide if the traditional investing route is even a viable option.

Inventory whether you have other resources to offer. Do you have a skillset or knowledge to contribute in place of the short cash position?

Step Three – Identify the Property

Work with your mentor, real estate broker or lender and evaluate your investment options.

• What is currently available and at what price?

• Will you be investing in a building that needs rehabilitation or is there a piece of land zoned for multi-family and you plan on starting a new construction project?

• Maybe there is a viable apartment complex that is just looking for new ownership?

• Depending on the location, the price and what work is needed, you might be able to make a traditional investment on your own or with a partner.

However, during this evaluation, you may find that your best opportunity to get in on a project is going to be through syndication. It could be due to limited cash resources or other restrictions. Be sure to keep an open mind to all your options.

Step Four – Evaluate the Investment

Once you have identified the property, run the numbers.

What's the overall business plan?

• Is there cash flow and appreciation already in play or do you need to make some assumptions based on surrounding area information?

• Does the property need work and at what cost?

• What is the future for the area? Is it a developed and vibrant community?

• Is it an area that is on a downward slide or maybe an opportunity zone?

Check with the city and/or county for 5-10-20 plans for the area.

• Will you manage the property or hire a management company?

• What is your exit strategy for the property?

• If you evaluate the investment and are happy with what you find, make the offer or join the syndication!

Step Five – Official Owner

After doing all of the research, making the offer or joining the syndication, getting the offer accepted, going through your inspections and negotiations, and finally closing on the property…. You officially become a multi-family investor!

Much of the hard part is over. However, now your focus shifts to managing and maintaining the property! You have to manage your management, watch your profit and losses and determine when you will exit.

Each of these steps are highly simplified but hopefully give you a better idea of how to get started!