Ask a Broker
In our current real estate climate, there’s no doubt that multifamily properties are in demand right now. That’s why our brokers are commonly being asked about the best way for investors to get into that market. Here is some of our best advice when it comes to multifamily investment strategies.
The very first thing you have to do is to go to a lender and see how much you can get approved for. If you get approved for $500,000 or less, you're probably looking at six units or fewer that you can buy. If you have money and reserves that you can put into it, then you can potentially buy a fourplex or an eight-unit property that needs some work and that has value-add potential. The rents may be lower initially, but you can renovate the units, increase the value overall, and turn it into an income-producing property.
Multifamily investment goals
It really depends on what you're looking to do and what your end goals are. If your end goal is for cash flow in the short-term, then buying a property in an area where there is less demand but a higher cap rate – or the potential return on an investment – may be the best option.
If appreciation is your goal, then buying a duplex or triplex in Chapel Hill, Durham, or Raleigh where the cash flow isn't going to be great but where the value of the property will appreciate is where you're going to be able to make your money in the long-term.
The role of location
As a general rule, if a multifamily property is in a good or growing location, it’s going to have a very low cap rate – potentially sub 5% - and carry less risk. In contrast, you may find a property where there’s less demand, and the cap rate may be 7%. In exchange, it will probably be a higher risk investment.
It really varies with the market and the property, but one of the best ways to find a good deal is to search for off-market properties or those that aren’t listed but where there’s reason to believe that the owner may be interested in selling. You can either work with a broker from the beginning on that or you can identify owners and properties yourself and then bring in a broker to help you with evaluating the property and the transactional items.
Here are a couple of strategies that real estate investors wanting to get into multifamily investing should know about.
- New investors with limited capital may be able to get a loan with very little money down. You would be required to occupy one of the units and rent the remaining units. This way, you can learn to be a landlord on a small scale. For experienced investors with capital, it’s important to know that you can expect to put 20-30% of the purchase price toward a down payment.
- Reach out to a broker who is working in the multifamily market every day and tell them about your goals. They will likely have some off-market opportunities others are not aware of.
We are currently working on about 160 units of off-market properties and can help guide either new or experienced investors in the right direction when it comes to these types of properties or other multifamily investments.
How to ask us a question
Our brokers will be answering your questions every month through the Ask a Broker series. If you have a commercial real estate question that you want answered, we’d love to hear from you at firstname.lastname@example.org.