While single-family residential property is often the first investment choice for real estate entrepreneurs, it isn’t the only one. You don’t have to represent a real estate investment trust (REIT) to find ways to invest in multifamily homes.
The allure of multifamily properties such as apartment buildings and complexes is that they typically offer higher returns and more stability than single-family rentals (SFRs). This is because they generate income from multiple units, so the rents paid can generally cover the mortgage, even when a few units are vacant.
It’s essential to understand the ins and outs of real estate investing, whether you’re a beginner or you’re looking to make the switch toward more commercial real estate opportunities. You already know that investing in real estate is a great way to build your portfolio, but make sure you also understand what it takes to effectively and efficiently manage your investment property.
When you invest in multifamily properties, you’re also signing up for a few key property management responsibilities (or asset management responsibilities, where you’re managing a property manager). When you own a rental property, you must ensure that it’s in good working condition and is visually appealing. You also need to make sure that you’re making enough in rental income and keeping your residents satisfied.
Here are our top five tips on how to effectively manage a multifamily investment property.
#1 – Plan appropriately
If you’ve never managed a multifamily property, there are a few key points to consider. This type of investment property requires long-term care and commitment to keep it at full occupancy. You could have a slight edge in picking up the necessary skill set if you’ve had previous experience managing SFRs or commercial properties. However, if you’re brand new to real estate investing, managing properties, screening tenants, and hiring property managers, we recommend starting small or working with someone more experienced. It’s easy to overextend yourself, and accidentally becoming overwhelmed can poorly impact your cash flow and returns.
Even if you’ve maintained a vacation rental, Airbnb, or hired a cleaning team for a commercial rental, this still doesn’t necessarily equip you for real estate investing involving multifamily properties. Multifamily real estate investments require precise planning and strategy.
By starting small and planning ahead, you can ensure your tenants keep renewing their leases again and again. Work to keep your property at capacity and make sure you don’t get overextended so you allow yourself the time needed to master the fundamentals of multifamily investing and management. Starting with a single multifamily property and taking the time to choose good investment opportunities will allow you to steadily grow your portfolio.
#2 – Make it attractive
While you’re busy managing your multifamily property, you should still focus on making passive income from your real estate investment. The easiest way to do this is to make sure your property stays at full rental capacity.
What’s the best way to encourage tenants to stay long-term? Our advice is to put yourself in the position of the renter. Since multifamily properties and apartment buildings are long-term investments, your best options are often working on your tenant perks, amenities, and quality of life improvements. Considering your property and the surrounding area, determine what type of amenities would be most attractive to potential and current tenants.
Before spending money on amenities and perks, be sure to calculate your projected total return to verify you’re investing in upgrades that will help you increase the property value and generate real wealth. Starting small with your first multifamily property will likely not make you wealthy overnight. However, working to add benefits and perks to encourage renters to stay long-term will help you to become a successful individual investor over time.
#3 – Screen potential renters
Your tenants are valuable in that they help you pay the monthly mortgage, provide you with gains, and can help increase your tangible assets’ capital value. Ideally, they help you generate more taxable income.
The beauty of owning residential rental property in the U.S. is that there are always potential residents looking for homes. That said, not all of them make responsible tenants, It is of utmost importance to find the right tenants for your property.
When screening residents, take their entire financial history into account. Consider their types of taxable income and other payment sources. Consider your minimum income to qualify for tenancy, too. This will help you ensure that a renter can afford to pay their lease each month. A quick background check is also recommended to help you determine whether or not they’ll require a credit sponsor or co-signer.
#4 – Keep the property in working order
Owning and maintaining a multifamily rental property involves more than just collecting rent payments and responding to resident maintenance requests. While those aspects are certainly part of the job, you also have to work diligently to maintain your property and keep it in proper working order. After all, these are people’s homes…they deserve them to be properly maintained.
After covering the monthly mortgage payments, you’ll have difficulty increasing your net worth if you’re ignoring maintenance issues. Problems have a way of getting larger over time, and an improperly-maintained property will experience higher tenant turnover and make-ready costs.
To increase the value of the property, you must find ways to regularly invest in seasonal maintenance and unit improvements. This could include property inspections, gutter cleaning, tree pruning, landscaping services, and HVAC maintenance. Focus on proper maintenance and things that will ultimately make the property more appealing for resale in the future.
#5 – Nail your marketing and leasing
To generate consistent rent collection, and therefore monthly income, you have to keep your occupancy high. That means quickly leasing units that are vacant or where the current tenant has given notice to vacate. Effectively marketing your property and quickly responding to inquiries are the keys to leasing. Whether it’s a rental property, vacation rental, or Airbnb, the listing must be marketed to potential renters in order to keep occupancy up. When you compare industry experts to new rental property owners, the distinctions are obvious.
Many vacation rental and real estate professionals understand how to effectively use marketing, advertising, and content production to attract guests to their homes, and this helps guarantee that they’re making a profit every month. Be creative about how to reach potential residents with automated marketing so you can be free to focus on managing your current residents’ needs efficiently.
A Few More Clues on How To Manage Multifamily Property
For new investors, the real estate industry can seem intimidating and competitive. When investing in rental properties, no matter if they house a single or multiple families, effective, efficient property management is essential to your success. You’ve got to pay attention to your current residents and the property’s condition, handle property maintenance, and keep your eyes on the horizon toward new tenants for when someone decides they want to move. That’s a lot to shoulder!
One of the best ways to achieve success in anything in life is to surround yourself with people at least one step ahead of you. In other words, make friends with other real estate investors who have experience with multifamily property management or asset management. Whether they are property managers themselves or have connections to and experience with multifamily property management companies, they could be a very valuable resource and a great buddy to have coffee with! Find ways you can add value to their lives in exchange for their great advice.
At BluSky Equity Partners, we’re here to help with experienced guidance in all areas of real estate investing and multifamily property/asset management. Whether you’re interested in investing in multifamily property directly, via syndications (group investments), or through a REIT, we’re here to lend our years of successfully managing multifamily properties to you! Often, the advice you receive can be the determining factor whether you hit your financial goals, build wealth efficiently, and grow your portfolio as a successful multifamily property owner.