How to Invest in Multifamily Properties

A multifamily property consists of multiple units in which tenants live.

A multifamily property, or apartment building, is a type of real estate that has multiple units in which tenants live. A tenant leases a unit that consists of typical living quarters, such as a bedroom and kitchen, for a set period of time, such as one month or one year. Units vary in size and amenities. Multifamily properties may provide a steady income stream to an investor and the potential to appreciate in value. With the proper selection and management of a multifamily property, you can increase your wealth.

Instructions

1. Determine an area that has a favorable economic outlook. Contact a real estate broker who knows that real estate market, can find you properties listed for sale in that area and can represent you in buying a property.

2. Select a property that is in good physical condition and that will require minimal maintenance and repairs. Choose a property with features, such as ample parking, that may attract tenants over competing properties.

3. Analyze the cash-flow potential of the property. To calculate the property's cash flow, estimate the property's annual rental income and expenses, including mortgage payments, and subtract those expenses from the rental income. Invest only in properties that provide positive cash flow. For example, if a property has $100,000 in rental income and $75,000 in total expenses and mortgage payments, subtract $75,000 from $100,000 to get $25,000 in positive cash flow.

4. Negotiate the lowest price with the seller through your broker. Perform your due diligence thoroughly, and then complete the acquisition of the property. Due diligence is the process of reviewing the property's physical condition, operating statements, rent records, lease agreements, service contracts and anything else related to the property that can affect its performance. Make sure all records are accurate and indicate that the property is free from defect and operational problems, and then complete the purchase.

5. Manage the property to maximize your rental income and minimize your operating expenses to generate the most profit. Maintain your rents at the market rate. Provide good customer service to tenants to retain your existing tenants when their leases expire. Sign a new lease with a new tenant as soon as possible when an existing tenant leaves to keep the property's units occupied. Maintain a strict budget for all purchases, and shop for the lowest-priced services, such as landscaping, to minimize expenses.

Tips & Warnings

• You also can hire a professional property management company to manage the property for you and run the day-to-day operations. This can free up your time yet still allow you to make all major decisions regarding your property.

References

• Realtor.com; What Buyers Should Know about Multifamily Homes
• Property-Investing.org: Before-Tax Cash Flow
• Property-Investing.org: Positive Cash Flow Properties
• CCIM Institute; Due Diligence: Digging Deeper; Patrick J. DiCesare
• CCIM Institute; Maximize Apartment Value Through Strategic Management; Stephen H. Scholder