A Deep Dive Into Multifamily Investing in 2023
Investing in real estate can be a daunting task, especially for new investors who are still learning the ropes. While single-family real estate may seem more approachable, multifamily investing can offer great opportunities for those willing to take on the challenge. Often, many investors are unaware of the potential of multifamily investing, either because they are intimidated by the scale of the investment or because they simply don’t know where to look. However, with proper research and understanding of the complexities of multifamily investing, it can be a lucrative venture with less management hassle. It’s important for new investors to take the time to learn and educate themselves before getting started, and to seek guidance from experienced professionals in the field. By doing so, investors can increase their chances of success in the multifamily real estate space. This blog will explain in detail a full understanding of multifamily investments.
When it comes to investing in real estate, multifamily properties tend to be significantly larger in scale than single-family dwellings. However, there is a crucial distinction between the two: the value of a multifamily asset is tied to the amount of income it generates. While other factors also come into play, such as appreciation and management efficiency, the core driver of value is the building’s ability to produce revenue. This may sound complex, but it is actually quite manageable for new investors. With an understanding of the key value determinants, including income, appreciation, management, and operations, investors can make informed decisions about their multifamily investment strategy.
In the realm of real estate investment, multifamily assets have become an increasingly popular option due to various factors that can contribute to their appreciation. One major factor is extrinsic growth. Extrinsic growth can be fueled by overall local GDP growth, a major employer relocating to the area, or the creation of employment opportunities through greenfield or brownfield projects. These events can all lead to increased demand for rental properties, ultimately driving up multifamily income and boosting asset values. While these factors are often outside of an investor’s control, keeping an eye on them can help inform strategic investment decisions and maximize returns in the ever-changing real estate market.
It’s crucial for property owners to stay up-to-date with changing trends and tenant preferences. Outdated appliances, shabby carpeting, and other worn features can quickly turn potential renters away, resulting in a property that falls short of its full rent potential. However, the good news is that strategically investing in upgrades across each unit can return rental income and ultimately increase the value of a multifamily asset. This investment in modernizing living spaces not only attracts and retains tenants but appreciates the property’s worth in the short term and long term. By taking a proactive approach, property owners position themselves for success in the rental market and set their multifamily assets up to thrive.
Managing multifamily assets can prove to be less time-consuming than managing single-family assets. This is due to the fact that there is a commonly followed rule in the multifamily industry that recommends employing one full-time office employee and one full-time maintenance employee per 100 units. This means that with a staff of two, a 100-unit property can be managed effectively. Assuming rents are $1,500 per month, two employees for a fully rented building can generate revenue up to $150,000, making profitable property management easier. Meanwhile, achieving this scale in the single-family arena would require multiple single-family investments and full-time investors’ attention. Managing multifamily assets offers a level of efficiency that can be hard to come by with single-family investments.
When it comes to real estate investment, many experts argue that there is both an “art” and “science” to it. The science part of the equation is simply a matter of crunching the numbers, looking at the balance sheets, and determining the income and expenses derived from the investment. This is where the rental income and ancillary income come into play, providing a clear picture of the overall revenue generated by the multifamily asset. However, the “art” of real estate investment involves factors that may be more subjective or difficult to quantify, such as market trends and local demand. Successful investors in real estate require a healthy balance between these two components, and investors must be prepared to use both their analytical skills and their intuition to make the right decisions.
Multifamily investing can be a smart pathway for novice investors aiming to gain greater investment competency. However, limited partners must accept the loss of management control as a major drawback. In addition, competition for good multifamily properties is fierce, and new entrants should be prepared for a string of “defeats” before landing a deal. It’s important to resist the temptation to outbid the competition without examining the financials. Patience is key, and starting with a smaller deal can help build momentum toward bigger deals in the future.
Another key factor of importance is to pay close attention to potential maintenance costs. One costly issue, such as roof replacement due to incessant leaks, can significantly impact the financial viability of the project. These expenses may not be evident during acquisition, so contingency provisions must be considered. The day-to-day management of multifamily properties can also be time-consuming, particularly if managing many properties. It is crucial to have well-equipped teams at each location and be prepared to manage them efficiently. Making these considerations early on can help ensure the success of the project and mitigate potential costly issues in the future.
Taking all of this into account you can come to a reasonable conclusion that multifamily investing is the key to scaling up income levels. The reason for this is simple: a single-family property requires a considerable amount of time and effort to acquire, manage and maintain. On the other hand, multifamily properties, by their very nature, offer several income streams that require significantly less maintenance. By focusing on multifamily investing, you can maximize your returns while minimizing the hassle and complications that come with juggling multiple single-family properties.
ABOUT JIM THORPE & SUMMIT CAPITAL PARTNERS
Jim Thorpe is a Seattle-based entrepreneur And real estate expert with over 30 years of experience in real estate development. He works to find high-demand properties in low-inventory areas for both developers and homeowners alike. One of his specialties is locating single-family homes in property parcels zoned for multi-family development. His rental portfolio now includes houses, apartments, and commercial properties. Thorpe’s dedication to his business has led to city-wide growth and development in the real estate sector.
Summit Capital Partners is a real estate development and management firm that operates out of Puget Sound and is owned by Seattle real estate expert, Jim Thorpe. They work to acquire off-market real estate and specialize in developing risk-adjusted solutions, allowing an asset’s value to increase over 6-12 months. Summit Capital aims to make a difference in the community where they do business.