Investing in multi family real estate has long been the perfect option for generating high rental income. Their immense cash flow coupled with their relatively low acquisition cost makes them the go-to investment for savvy real estate investors who are looking to grow their wealth in a steady and efficient manner. So how to invest in multi family properties in 2020? And what are some of the steps that you need to take in order to build a profitable multi family investing portfolio? In this article, we will share with you some valuable tips that you need to keep in mind when investing in multi family properties.
Related: Why Investing in Multi Family Homes Is a Must for 2020
2020 US Housing Market Outlook: Multi Family Sector
Before delving into the tips on how to start investing in multi family properties in 2020, we must first go over how the market looks for multi family real estate investing. You will be glad to know that the multi family housing market will pick up right where it left off in 2019. The economy is strong, unemployment has hit record lows, and demand for multi family investment property will remain at a healthy level. Here are some of the positive trends that will shape this year’s multi family market:
- Millennials will continue to drive demand for multi family rental properties; even as more of them opt for homeownership, others will still face affordability issues.
- Supply of multi family real estate will remain balanced as developers are expected to remain active throughout 2020.
- Suburban multi family markets will be as strong as ever.
- The vacancy rate will rise slightly but will remain below the 5% mark.
Let’s now check out some tips for investing in multi family properties.
10 Tips for Investing in Multi Family Properties
As profitable as it is, buying multi family properties can still prove to be challenging if you don’t stick to a coherent strategy. The tips below should give you an idea of how to approach the process of buying multi family homes for investment.
1- Learn the difference between property classes
The first thing you need to know when investing in multi family properties is the difference between property classes. There are four in total; A, B, C, and D. Class A is usually reserved for the new properties that boast a wide range of modern amenities. On the opposite end of the spectrum, class D refers to old properties that are located in low-income areas. Investing in each of these classes can be profitable as long as you understand the implications of each one. For example, class A properties are easier to manage but are more expensive whereas D classes are more affordable but might involve dealing with problematic tenants. Learn more about property classes by reading: Everything You Need to Know About Property Classes.
2- Invest in cities with strong multi family real estate markets
Identifying a strong housing market is an essential step when investing in multi family properties. There is no reason to limit yourself to your local market as profitable investments can be found across the country. Here are some of the best multi family markets in 2020 with the highest cap rates based on Mashvisor’s data:
- Naples, Florida
- San Bernardino, California
- Hollywood, Florida
- Chicago, Illinois
- Long Beach, California
3- Opt for suburban properties
As mentioned, the suburbs are still the perfect location for multi family properties in 2020. In fact, suburban properties will continue to outperform urban properties in all the critical performance metrics. Vacancy rates will remain below average and rent will maintain its steady growth. Buying a multi family property in a vibrant suburb that is near schools, hospitals, and shopping centers is the safest approach for a beginner multi family investor.
4- Use online investment property search tools
Knowing how to find multi family homes for sale is an important skill for every real estate investor. Thanks to the emergence of online investment property search tools, finding multi family homes for sale has never been easier. If you are asking yourself the following question «How do I find multi family homes for sale near me?», then look no further than Mashvisor. Mashvisor’s Property Finder is an AI-driven tool that allows you to find fourplexes, triplexes, and duplexes for sale in a matter of minutes.
5- Plan for your expenses
Investing in multi family homes comes with a host of expenses. In fact, the costs of operating a multi family property can be substantially higher than managing a single family home. This is especially the case when dealing with unexpected repairs. This is why you should carefully plan for these expenses by setting aside extra funds.
Learn More: Multi Family Investing: How Much Money Do I Need to Get Started?
6- Have your financing lined up before investing in multi family properties
One of the smartest things you can do as a real estate investor is to have your financing in order before committing to a purchase. There are several multi family financing options and understanding what each one has to offer is essential for making an informed decision. Here are some of the financing methods that are available to you:
- Conventional mortgage lending
- FHA-insured loans for owner occupied multi family
- Short-term bridge loans
- Seller financing
- Regional bank financing
Learn More: Financing a Multi Family Property: A Beginner Investor’s Guide
7- Explore no money down options
Figuring out how to buy multi family property with no money is not as difficult as it seems. Below is a quick look at two effective solutions:
- Work with hard money lenders: This is a financing option that is based on the value of the investment property rather than your credit score. These lenders might offer no money down loans if they deem the property to be highly profitable.
- Offer equity shares: This is another strategy that relies on private money. To put it simply, you are offering a portion of a profitable rental property to an investor in exchange for a sum of money that you can put toward a down payment.
8- Consider implementing a house hacking strategy
Housing hacking will remain a viable tactic throughout 2020. This owner occupied multi family strategy involves renting out one or more units in your investment property whilst living in another. You could qualify for a low down payment FHA loan. This can be a great way to navigate expensive real estate markets and offset the costs of managing a multi family property.
9- Work with a real estate agent who specializes in multi family properties
Working with an agent who focuses on multi family properties can save you a lot of time and effort. Furthermore, real estate agents who have handled multi family deals in the past have a full understanding of the escrow process and can guarantee a smoother transaction. Moreover, they can tap into their extensive network to find the ideal fourplex, triplex, or duplex property.
10- Talk to a tax expert
Investing in multi family properties has different tax implications than buying single family homes. Moreover, tax regulations vary from one state to another and sifting through a sea of legal jargon to understand them might not be the best use of your time. Consulting a financial adviser will help you manage your real estate taxes in a smart and cost-effective manner.
The Bottom Line
Investing in multi family homes is one of those evergreen real estate strategies that will always yield a good return on investment. Applying the tips above should make the process of investing in multi family properties more accessible and less stressful.