Many real estate investors hesitate to invest in a multifamily investment property. There are many reasons for this.
- Real estate investors are told to start with single family homes (good real estate investment advice), but they never expand to multifamily homes from there.
- They are unsure about financing a multifamily investment property or multifamily real estate investment loans.
- The number of tenants a multifamily investment property promises can be intimidating.
- Many real estate investors are unsure how to make money in real estate with multifamily investment property.
When it comes to the first three reasons, the best real estate investment advice is to figure out how to make money in real estate with multifamily investment property first. Once you’ve done this, you’ll realize moving onto multifamily homes is a good idea and the number of tenants will only spur your success in real estate investing. As you learn how to make money in real estate with multifamily investment property, you’ll also find out how to find the best multifamily homes to ensure you qualify for real estate investment loans.
Let’s get you onto the path of successful multifamily real estate investing. Here is how to make money in real estate with multifamily investment property.
How to Make Money in Real Estate: Start with the Right Real Estate Market
The right real estate market can mean a lot of different things to different types of real estate investors. As a soon-to-be multifamily real estate investor, you need to be able to identify the right real estate market for multifamily homes. Learning this is step #1 for how to make money in real estate with multifamily investment property. This is because the right real estate market brings the best return on investment!
High Demand for Multifamily Investment Property
Take it as a general rule that when it comes to multifamily real estate investing, you need to look for a real estate market located in a city, rather than a suburban area. Bustling and busy cities tend to have higher demand for multifamily investment property. While a multifamily investment property for sale in such locations may be more expensive, it’ll generate a better rental income and return on investment because of this high demand.
The only way this demand will be high is if the real estate market is located in a city with a stable and growing economy. Look out for current and future economic trends for any real estate market you wish to invest in.
Property Classes
You’ll also want to be aware of multifamily investment property classes and the classes of real estate markets. For example, a Class A multifamily investment property is one that is new, needs no renovation, and will bring in the highest rental income. It should be located in a real estate market considered to be Class A: a newer neighborhood that is growing.
Matching property classes to the location or buying multifamily property for investment in a location of higher class than the property class will bring the best return on investment. You can learn more about Classes B-D by reading “Learn How to Invest in Multifamily Homes for Sale.”
Real Estate Market Analysis
Buying multifamily property for investment based on the previously mentioned criteria is only the “guesswork” of the process. How can you be sure you’ll be buying multifamily property for investment in a location that promises a great return on investment? Real estate market analysis, that’s how.
With real estate market analysis, the cash on cash return, cap rate, and potential rental income for a location are revealed. All of this shows what kind of return on investment you can receive with a multifamily investment property in that real estate market. With the right numbers, you can move forward with buying multifamily property for investment.
For a commercial real estate property, real estate market analysis will pretty much end here. For a residential real estate property that has 4 or less units, real estate comps will have to be found to determine the value of the investment property for sale.
Want a couple of suggestions for great places for multifamily real estate investing? Here are a few of the best cities:
To start looking for and analyzing the best multifamily investment properties in your city and neighborhood of choice, click here.
How to Make Money in Real Estate: Multifamily Real Estate Investment Analysis
Once you’ve landed on the best place to invest in real estate for multifamily homes, it’s time to choose a multifamily investment property. The only way to really learn how to make money in real estate with multifamily investment property is to choose the right property- one that makes money.
The best way to find multifamily homes is through multifamily real estate investment analysis. Second only to choosing the right real estate market, real estate investment analysis is the most important step when buying multifamily property for investment.
Just as real estate market analysis revealed the cash on cash return, cap rate, and rental income for a location, multifamily real estate investment analysis reveals all of these measures of return on investment for multifamily homes.
As mentioned, with a commercial real estate property, real estate market analysis will not determine the value. Instead, multifamily real estate investment analysis will help you decide if the price is right compared to the actual value of the investment property for sale. This comes from the earning potential. The better the earning potential (return on investment), the higher the value of the investment property for sale.
Related: Understanding Multi-Family Investment Property Returns and Benefits
How to Make Money in Real Estate: Real Estate Investment Tools
To learn how to make money in real estate with multifamily investment property, you have to hone your skills for analysis. This is no easy task. Luckily, help can come from real estate investment tools.
An investment property calculator, like Mashvisor’s, can perform both real estate market analysis and multifamily real estate investment analysis. Within seconds, you can decide if a location or investment property for sale will make you any money. This is because an investment property calculator quickly returns cash on cash return, cap rate, rental income, and other metrics for a real estate market (city and neighborhood) and an investment property. You don’t have to worry about manual calculations or research and analyzing numbers if you invest with this tool.
To start your 7-day free trial with Mashvisor and subscribe to our services with a 15% discount after, click here.
How to Make Money in Real Estate: Multifamily Real Estate Investment Loans
In order to know how to make money in real estate, you have to understand the effect real estate investment loans have on your profit. If you end up with high monthly mortgage payments or interest rate, you could be dealing with a negative cash flow property.
Mortgage lenders offering multifamily real estate investment loans focus on the earning potential of multifamily homes. While they might be more expensive, these investment properties are seen as less of a risk because it is unlikely they will end up with 100% vacancy and $0 rental income. As long as a multifamily real estate investor follows the right steps for choosing a location and an investment property (as mentioned above), qualifying for multifamily real estate investment loans shouldn’t be too difficult. Just be sure you work on your credit score if your financing method needs it!
Did you know you can buy multifamily investment property with no money? Read “How to Buy Multifamily Property with No Money” to find out more.
How to Make Money in Real Estate: Professional Property Management
The final step of how to make money in real estate with multifamily investment property is all about the management. You have one of two options: work hard to be the best rental property manager or hire professional property management. Professional property management will work for you to market the property to get tenants in place. They’ll handle all of the day to day activities to keep these tenants happy and keep the rental income flowing. You will be spending a percentage of your rental income on professional property management, but you’ll find they will be your best source for how to make money in real estate with multifamily investment property.
As you can see, if you want to know how to make money in real estate with multifamily investment property, it starts from the very beginning. Choose the best real estate market and the best investment property for sale. Both elements will ensure you don’t have difficulty with real estate investment loans. From there, rental property management needs to be on point. This is the formula for making money in multifamily real estate.
Want to make money in real estate passively with multifamily investment property? Then this is a must-read: How to Generate Passive Income from Multifamily Real Estate Investing