If you think that multi family real estate investing is hard, then think again. We are here to tell you that is not the case if you start small. We mean, literally SMALL!
Getting started in real estate, in general, is not as hard as people think. In fact, if you look at it like any other business idea, it consists of the same steps. Investing in multi family properties is no exception to this rule. However, the problem is when people think of multi family homes, they go straight to huge apartment buildings. Although they are considered multi family homes, that doesn’t mean that there aren’t other types. In fact, we encourage beginner real estate investors to start with smaller multi family properties (duplexes, quadruplexes, etc.) and then expand to a bigger project. Here is why:
- A small multi family investment property is more affordable.
- Smaller properties are generally easier to finance.
- Small multi family properties are easier to manage (which makes it more affordable to manage if you choose to hire professional property management services).
- Starting with smaller properties for multi family real estate investing is a lower-risk investment compared to larger buildings.
Related: What You Need to Know Before Buying Multi Family Homes for Investment
So, now that you know why you should look for small multi family homes for sale, the question is, how do you start in multi family real estate investing with this type of property? Here’s a five-step guide:
Step 1: Acquire Proper Real Estate Education
Multi family real estate investing is not that difficult if you acquire proper knowledge of the real estate business. Here’s what you need to start with:
What is multi family real estate investing?
Multi family real estate investing is when you buy a property which consists of multiple units which you can rent out to multiple tenants. For example, duplexes are multi family homes with two living units that can be rented out to two tenants. Quadruplexes are multi family properties with four living units which you can rent out to four different tenants.
How do you analyze your property choices?
The investment analysis consists of two parts: 1) The real estate market analysis and 2) the investment property analysis. Both of these analyses look into different aspects of multi family real estate investing. The first examines the profitability of the real estate market within which the property is located while the latter examines the profitability of the property itself. Of course, we’ll talk about both aspects in further steps, but here are two quick guides from Mashvisor for beginner real estate investors:
- What Every Real Estate Investor Needs to Know About Real Estate Market Analysis
- Investment Property Analysis: Real Estate Investing
What are your options for investment property financing?
Learning about investment property financing is crucial for multi family real estate investing. By the time you’ve analyzed a few investment properties, you will have to have figured out your personal finances in addition to ways of funding the property purchase.
Here’s a guide on How to Get Your Finances in Order Before Buying an Investment Property.
Step 2: Decide What Rental Strategy You Want to Work With
Since you are investing in residential real estate property, think about the various rental strategies available to you. Think of what you want from this real estate investment. Do you want a steady income, a lower vacancy rate, and legal security? Then you might want to consider traditional rentals (long-term rentals). This type of rental property provides the owner with a steady income throughout the duration of the lease term. This is because traditional rentals promise higher occupancy rates which means that the investment property is producing cash flow on a steady basis.
On the other hand, if you are looking to be more involved, have higher rental income, and the flexibility, then short-term rentals such as Airbnb are best for you. Airbnb investing provides the owner with the chance to charge per night which means he/she can charge higher when the season and demand allow it. Also, it helps you build connections and interact with people. In that way, you can make sure to build a client base which will keep the investment property occupied more frequently.
Have you decided what rental strategy to choose for multi family real estate investing? If not, read this article: Traditional Rentals vs. Short-Term Rentals: Which One Is the Right Rental Strategy for You?
Step 3: Look for the Best Locations for Your Rental Strategy
After deciding what rental strategy works best for you, it is time to decide where to invest in real estate. Succeeding in multi family real estate investing is highly dependent on location. Therefore, real estate market analysis is needed at this point.
The real estate market analysis is a process that an investor goes through in order to analyze a certain location for profitability. It examines the market in terms of rental demand, optimal rental strategy, appreciation rates, future market trends through predictive analytics, as well as other variables that are unique to each real estate market you look into.
As a beginner real estate investor, you will need proper real estate investment tools to help you with the process. And there is no better tool for multi family real estate investors than a heatmap analysis tool!
This advanced tool is one that every real estate investor must use in order to decide on the best rental strategy and the best location at the same time. The heatmap tool will basically display all the neighborhoods which have properties for sale. Once you choose a certain neighborhood, you get a brief neighborhood analysis in addition to some profitability measures for both traditional and Airbnb rental strategies. In this way, it will be much easier for you to determine whether the location is fit for your rental strategy of preference.
Mashvisor’s Heatmap Tool
Once you’ve got an idea about the location, go on to the next step: browsing for multi family deals.
Step 4: Browse That Location for Multi Family Real Estate Deals
Now is the time to look for multi family homes for sale in your chosen location. The best way to do it is by analyzing at least 10 multi family rentals for sale and narrowing down your options to three or less. How do you do that? Through a multi family real estate investment analysis, of course.
Related: Understanding Multi Family Investment Property Returns and Benefits
Buying a multi family home for investment requires that you start analyzing these properties for return on investment measures. This process includes calculating the capitalization rate and the cash on cash return in addition to conducting a comparative market analysis.
This is the part where the multi family investment calculator comes into play in multi family real estate investing. The tool calculates the rental income, expected and unexpected expenses, and how mortgage rates, property price, and the down payment affect your ROI. Through this data, you’ll be able to spot the top performing properties for your multi family real estate investing business.
Step 5: Choose Your Ideal Multi Family Property and Close the Deal
The final step is for you to choose one of the multi family homes for sale. Now, and only after you made sure you have a few very profitable options, you can choose based on looks, views, and design preferences. Don’t forget to get a professional home inspection in this stage as well to help you come to a final decision.
The only step that is left now is closing the deal with the owner!