If you’re new to real estate investing, you’re likely doing deals in single-family houses.
But if you want to ramp up your income, you will move into multifamily properties.
Before you take that step, you need to find out if it is right for you. That’s part of determining your Investor Identity.
For me it’s a no-brainer.
I can do deals in the multifamily space using none of my own cash or credit just as easily as I can for single-family properties. So why wouldn’t I?
I cover this topic in one of my YouTube videos. Check it out here…
Truth is that investing in multifamily properties is one of the most powerful investment strategies you can use to create big numbers in monthly cashflow. (If you do the math, you’ll see what I mean. Multiply $300 by 12 doors. And that’s the cashflow after debt service month after month. Not bad, huh?)
If you’re new to market analysis or analyzing deals, maybe this YouTube video will help you. It’s part of a series of short educational pieces that were created for one reason… to help you. Watch this one and then come back here… Whether it’s a duplex, a tri-plex, a 4-plex, 8-plex or any size apartment building, you can earn exponential cashflow if you do your deals the right way.
That’s why you need to understand the formulas behind the analysis.
In this next clip, I go over this; I answer the question of “how to analyze a tri-plex deal. Give it your attention for the next few minutes…
But what about larger apartment buildings?
I do those, too. The math is a lot bigger, but you analyze the deal with a formula. (Surprise, surprise, huh?)
I won’t go into here, but I created a short video to help you analyze these bigger apartment buildings, too. In it I go over all the “little things” you need to calculate into the deal to accurately analyze whether you want to do it or not!
Watch the clip now:
Obviously cashflow is a great reason to get into investing in multifamily properties. But cashflow opportunity is just one reason to invest in multifamilyproperties.
Here are six more:
1) Multiple Properties Under One Roof Means Easier Management
What’s more attractive… 12 single-family homes spread out across a city to manage, or 12 units under one roof? With the 12 individual properties, you may need more than one property manager; with the one building you only need one manager.
Now let’s say you have a 72-unit building. You still only need one manager on site or one property management company that will handle rent collection, tenant issues, and grounds and other management duties.
Finding a great property manager means you have to ask the right questions, and you always want to have a plan B in case the property manager or management company doesn’t work out.
Make sure you never have a single point of failure. (That means you’ll keep interviewing potential candidates.)
2) Forcing and Phasing Appreciation in Multifamily Properties is Easier Compared to Single-Family Housing
Appreciation rarely just happens. You have to do specific things to force the value of a property up or phase in amenities and benefits to tenants which will push the appreciation up.
I talk about this in a Cash Flow Diary podcast episode. Listen now…
In single-family housing, you don’t have as many options with these activities, because there’s only so much you can do.
In a single-family home, you can slap some lipstick on the property to give it more curb appeal, or you can do a deeper rehab to make the property more functional. However, you are doing this to force the appreciation on ONE property only.
When you give your apartment building (or even a 4-plex or 8-plex) more curb appeal, fix things in the property that make it more appealing as a living space for tenants, add a nice laundry room or business to the property (if we’re talking about more than 12 doors), or revitalize a useless space to create something that is a benefit to tenants, and you will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating more and steadier cashflow, because your tenants will want to stay.
3) You Can Create Even More Cashflow in Your Multifamily Property
This is pretty exciting stuff, because there are ways to create cashflow beyond rents. Take the last point, for example.
What if you add a nice laundry facility to the property? Say you have a one-bedroom unit or a studio apartment in your building that you know will only invite transient tenants. What can that space become that will generate even more income month after month?
A safe, clean, well-lit laundry room with decent coin-operated machines can be a great idea. It benefits the tenants who don’t have washers and dryers in their units and would normally have to lug their laundry to the nearby Laundromat. Why make them do that when they could have the laundry room on the property? They are using coins either way. Why not let them feed those coins into your machines? The cost of the machines will be covered quickly, and you can get great deals through bulk purchasing.
Make the space clean and safe. Consider adding a security camera to keep out any bad elements, and you have a winner. In fact, that’s called a win-win. You win; your tenants win. You’re creating a space that raises the quality of your tenants’ lives, which feels really good. (The laundry room is just ONE thing you can add. There are many more amenities to add that bring additional cashflow in a variety of ways.)
4) There Are Great Tax Breaks that Come with Investing in Multifamily Properties
When you provide housing it’s a good thing. The government thinks so, too.
The city in which the property is located likes the idea, because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it.
As a result, you can gain all sorts of tax incentives… also known as tax breaks. You can take a whole lot of deductions because this is a business. You are running a business of Real Estate Investing. You can depreciate all sorts of things in an apartment building or rental property, and that depreciation takes place over more than two decades… sometimes three decades, depending on whether the property is classified as residential or commercial. The size of the property and other factors dictate the classification.
One of my guests goes into tax benefits to real estate investors. I’ve had him on a couple of times. His name is Mark Kohler. Here’s an episode in which he talks about incentives.
The long and short of it is that when you invest in multifamily properties, you’ll want to get a very competent CPA and/or CFO to help you get as many deductions and tax incentives possible. It could be that you can even get government grants to offset upfront costs. The benefits on this side can be massive. You could end up paying zero property taxes. That would save you money in a big way, right?
5) Multifamily Properties Hold Their Value
Once the property is rehabbed, and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later (if you ever want to sell). You’ve put in place everything required to attract and retain tenants. That means steady cashflow, which is mighty appealing to investors.
You have to make sure to maintain your property so it retains its value over the long haul. The grounds must be kept up, minor repairs performed in your ongoing maintenance plan, and really good maintenance people must be in place. Find the best by asking the best questions. Do you due diligence on the people wanting to work for you.
Due diligence is very important before the deal closes. I talk about this in episode 16 of my podcast. Here’s a link…
You want maintenance people and grounds keepers who share your desire to provide clean, safe housing. That’s part of what they are responsible for… maintaining a good living space for the tenants. You need to learn the difference in workers’ mindsets. It’s a sure bet that theirs will reflect yours. You want motivated workers. Learn how to adequately motivate them to not just care for the property but also care about the people living there.
6) Investing in Multifamily Housing Allows You to Change Lives
If you create a space where families can thrive, that’s a perk. You could go into Wal-Mart-type areas where you see lots of opportunities for improvement. In apartment buildings and smaller multifamily properties, you’ll see opportunity in the form of boarded-up windows, overgrowth of the grounds, graffiti, messed up swimming pools, filthy laundry rooms and dwellings that need a whole lot of help.
How good would it feel to get that property, rehab it, solve the problems, attract families that need clean, safe, affordable housing… and then positively impact whole zip codes?
You can do exactly that if you have the commitment and the right teams in place to help you through the rehab process. You’ll need other team members, too, but you can learn what that looks like before you begin.
Here’s a video that explains some of the steps in just a couple of minutes. It’s one in a series of videos I produced to help you get further along your path in real estate investing…
Obviously, investing in Wal-Mart-type areas isn’t for everyone. Fortunately, there are plenty of other levels in the multifamily investing space. You can find properties that fit your Investor Identity. Then you can affect change, and earn great cashflow at the same time. That’s a great accomplishment.
Knowing that you have the ability to change lives is something that makes you feel good.
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