For many investors, multifamily loan properties represent the next level of their business. The higher price tag and amount of risk involved isn’t for everyone, of course, but for those ready to take the plunge, there can be big rewards.
Reasons for Investing in Multifamily Real Estate
More income, more tenants.
Investing in multifamily properties means multiple streams of income under one roof, which is why so many investors look to multifamily properties in the first place. Just remember: To keep those streams flowing, you’ll need a marketing plan for your property to keep vacancies low.
Crunch the numbers.
It is vital that you do your due diligence when determining the value of your multifamily property. It’s a good move to overestimate your costs and underestimate your income to see if you can make it work before purchasing a property.
Evaluate the equity.
Your investment will create its own equity eventually, but it is even better to buy into a property that already has it. A motivated seller might be willing to get out of a property for less than full value, or you could buy a property that needs work at a discount.
Location, location, location.
Ah yes, the cliché of real estate. But it’s even more important for you to consider as a multifamily buyer, particularly if you are banking on an up-and-coming neighborhood. If you hit a trend, you hit the jackpot.
Consider the comps.
Like location, this is also a no-brainer. But there are just so many things to compare with multifamily units. You could blow would-be tenants with a kitchen upgrade, but if the unit doesn’t offer a terrace, roof deck, pool, or any other desirable amenity, they may opt to move in somewhere else.
Multifamily units come with higher price tags, so you will need to be realistic about the cash flow of every unit. That means you’ll also need a plan to cover your costs if you’ve got vacancies.
Appreciate the scale of economy.
Avoid multiple projects—and enjoy major discounts—by renovating all at once. You and your tenants will be better off when things aren’t in a constant state of flux.
Hire a property manager.
More tenants naturally means more maintenance. Unless you plan to be a full-time landlord, you will likely want to move on to other investment opportunities. It makes sense to add a property manager to your payroll to keep things running smoothly, especially if you own an apartment building.
Multifamily properties can be a better investment strategy then SFR investments
In a competitive real estate market, getting to the next level with your investment portfolio requires bigger thinking—as in bigger properties. It’s no surprise that many single-family property investors are looking to multifamily homes to boost their bottom line.
While a bigger investment can naturally come with greater risks, it also comes with greater rewards.
Here are some reasons you should think about making the leap into multifamily properties:
You will save time and energy.
Even with all the prospecting and due diligence that goes into each deal, multi-family properties can save time in the long run. Consider this: If you were to invest in an apartment building with 20 units, it would certainly be a faster deal than if you were to invest in 20 single-family properties.
You can manage them more efficiently.
It is a major advantage to have multiple investments under one roof. When your numerous management responsibilities are streamlined to a single location, you will have lower costs and fewer time commitments. Even if you hire a property manager, the time you save—which can be used toward finding your next deal—will be worth the additional payroll.
You will reap a higher ROI and NOI.
When you invest in a multifamily property, even a renovation to a single unit will boost the value of the entire property because you can charge a higher rent and increase your net operating income. Now imagine what you could do for your bottom line if you improved or added amenities that could benefit all tenants, such as on-site storage space or additional parking. Renovations to a single-family home can be risky, but with multifamily, you have greater control over the value of the property.
You will handle vacancies better.
With single-family homes, an empty house means no income. With multifamily properties, you have a much better chance of covering your costs even if you have vacancies. Apartment building owners especially will benefit—unless the entire building is empty of tenants, there is a cash flow even with minimal occupancy.
You will keep up with the changing market.
An agile investor is a successful investor. The high demand for single-family homes has led to lower inventory and higher price tags. Meanwhile, rents are rising throughout the country. Many renters are choosing to wait out buying a property rather than navigate such a competitive market—which is good news for investors in multifamily rental properties.
If your aim is to diversify your real estate investment portfolio in 2018, a multifamily property could be worthy of your consideration. For investors experienced with single-family properties, it will represent an exciting new challenge, but the rewards are worth it.
Home Improvements Tips for Multifamily Units
Intelligent rehabs to luxury multi-dwelling units can lead to rent increases of 10 to 30 percent, experts say. But which upgrades offer the most value?
As with single-family home rehabs, the value of upgrading varies by region, but some improvements are smart choices in any city. Consider these upgrades to entice buyers and fill units faster at higher rent prices.
Incorporate LED Lighting in Common Areas and Units
Sleek, modern pendant lights in finishes that match other hardware in the unit create a cohesive look. The latest trend is smart lighting and tunable white LEDs, which allow residents to adjust the color temperature of the bulb for a warm or cool tone depending on the time of day, their mood, or their activities.
Also consider adding color-changing LED tubes to give a party room, fitness center, or any gathering space modern flair.
Welcome Guests with Wood or Tile Flooring
Improvements in common areas will create immediate positive responses in luxury high-rise MDUs. Invest in high-quality hardwood flooring, which will create a trendy look today but also stand the test of time.
Large ceramic or slate tile flooring also has several benefits: It is easy to clean, neutral enough to match any décor, and offers a timeless, classic look in any rental unit or common area.
Give Your Building Curb Appeal with Window Upgrades
Remember to include outdoor improvements, such as new windows, which will look great from the inside and out. If your budget does not permit upgrading all the windows in a building, focus on ground-floor common areas first. Upgrading to energy-efficient windows can lower your operating costs over time, and a “green building” is a characteristic eco-savvy tenants seek in luxury apartments.
Stock Units with the Latest in Smart Technology
The home of the future is voice-controlled, smart, and user-friendly. Intelligent LED lighting can be controlled via Amazon Alexa or Google Home units, which can double as a distributed sound system to fill the apartment with music.
Stand-alone smart technology such as a Ring doorbell adds a sense of security. And with Amazon’s recent purchase of the smart doorbell manufacturer, it integrates seamlessly with Alexa for voice activation.
Bonus Tip: Take Advantage of New Tax Laws by Writing Off These Improvements
Under the new tax law, you can deduct the full amount of capital improvements to rental properties in the first year, rather than depreciating those costs over time. For that reason, it might make sense to choose at least one item on this list to upgrade each year—or do it all at once for a generous write-off.
Remember, luxury tenants expect the best and have the money to pay for it. Pay attention to both the details and the big picture to create a luxury MDU your tenants will love to come home to.
Safety Features to Look for in Multifamily Properties
When you maximize your multifamily property loan by embarking on a multifamily investment project, you have to worry about more than just keeping your property safe and protected. You want to ensure the safety of your tenants as much as possible.
Leverage today’s technology to go beyond just adhering to safety regulations; protect your tenants and your property while improving the value and desirability of the units. Here are five to consider:
Sprinkler systems that exceed code.
The National Fire Protection Association has outlined provisions for new single-family and duplex homes to include fire sprinklers, but only California, Maryland, and Washington, D.C. require fire sprinklers in new construction. There is no provision for other multi-dwelling units less than four stories high.
The cost to retrofit sprinkler systems in new homes can range from $2 to $7 per square foot, while installing fire sprinklers in new construction typically costs as little as $1.35 per square foot, according to the NFPA. While it may not be a coveted feature, finding a property with fire sprinklers can increase your peace-of-mind. The presence of fire sprinklers may also reduce your insurance costs.
Security and fire alarms connected to local police stations and firehouses.
Of course, you want your security and fire alarms connected to yours and your tenant’s smartphones so you’re both alerted in the event of an emergency. But consider paying the monthly fee for remote monitoring, which also alerts police or firefighters if there is a break-in or fire.
As with fire sprinklers, the investment can reduce your insurance costs and increase your peace-of-mind, especially if you don’t live in the same city as the property.
Smart doorbells that protect your tenants and your property.
A relatively low-cost investment at under $200, plus a monthly monitoring fee for the app, smart doorbells can alert you and your tenants about everything from break-ins and vandalism to package theft.
Water sensors to alert you to flooding.
No longer just the domain of luxury estates, smart water sensors that trigger an app when they get wet can help you minimize the damage of flooding. A worthwhile investment in areas prone to hurricanes or floods, and in any MDU with a basement, water sensors protect your investment from one of the top five property risks, and the most costly hazard to property owners.
Storm-proof doors, windows, and roofing.
Homes in a storm zone, especially along the coasts, may benefit from doors, windows, and even roofing that is rated to withstand hurricane- or tornado-force winds. Buildings in Southern Florida constructed after Hurricane Andrew may already have these protections in place, but that leaves plenty of the state and many other storm-prone areas of the country—still vulnerable.
Before you invest in a property, find out what building code standards were followed and determine if it’s worthwhile to invest in upgrades—especially if the windows, doors, and roofing need to be replaced as part of the rehab project, anyway.
A Rehab Loan Can Help You Pay for Safety Features
The fire and safety requirements of two- to four-unit MDUs is nowhere near as strict as code for high-rise apartment buildings. But you may not be able to count on your tenants to look after your property as if it were their own. Seeking properties with safety features in place, or retrofitting to include these features, can help save time, headaches, and lost revenue down the line if the apartment is unhabitable due to damage.
CoreVest’s multifamily property loans can allow you to roll these costs into the mortgage, reducing your out-of-pocket expenses while protecting your investment.
Avoid Multiple Problems in Your Multifamily Housing
Multifamily housing is a boon to your real estate investment portfolio, but it can also be a source of frustration at times. A successful strategy to managing these properties and making the most of your multifamily property loan requires property owners to react quickly when problems occur and be proactive in preventing issues in the future.
Here are some ways in which you can face challenges like a pro and keep your tenants happy.
Act Quickly with Plumbing Issues
While a leaky faucet or clogged drain might be a mere nuisance in a single-family home, it can cause major problems if left unattended in a multifamily home. If a tenant—particularly one on the top floor—notifies you of a plumbing problem, it should be taken care of right away to avoid flooding and possible water damage to other units or floors.
Be sure to impress upon your tenants that plumbing problems are a priority for you; otherwise, some enterprising DIY’ers in your building might think they can solve the issue themselves and cause even more problems. When a new tenant moves in, provide a list of dos and don’ts for plumbing, including what not to dispose of in a garbage disposal or septic system.
Replace Major Appliances Accordingly
Major appliances like refrigerators and stoves can be costly to replace in multiple units. If you have a two- or three-family property, it might make sense for you to find a discount on multiple appliances and replace them for every unit at the same time.
If you own an entire apartment building, one way to stretch your dollar is to sign up for extended warranties on appliances so you have longer coverage on small repairs. Make note of the timelines for when new appliances are installed, that way you can prepare and earmark funds for replacing them in the (hopefully) distant future.
There are fewer ways to quickly make enemies of neighbors than battling over street parking space. If you have the means and the space to do so, providing off-street parking for at least one car per unit will not only put you in the good graces of the neighborhood, it will also allow you to charge higher rents. To avoid parking problems among your tenants, assign clearly delineated parking spaces. In the event of snow, have a snow removal plan in place.
Optimizing your bridge loan by owning multifamily homes doesn’t have to mean multiple problems if you are proactive with your approach to maintenance and upkeep of your properties.
Of course, this is good advice for any investment deal. But multifamily properties are commanding high price tags, so if you’re looking to crack the multifamily market, you might have to be patient to find the right opportunity. The good news is that with 5arch, you’ll have speed and assurance of funding combined with industry-low rates.
There are always inherent risks in real estate, and more so with multifamily properties. Still, when the timing and opportunities are right, they can bring big things to your investment portfolio.