How to start investing in multi family real estate– We’ve been asked this question over and over again for a while now. Therefore, we decided to put together a guide for beginner real estate investors on how to start their journey with multi family real estate investing.
As a real estate investing strategy, it is most common among seasoned investors. But, why not start your real estate career investing in multi family homes? A lot of novice investors avoid it due to the risk element. However, we are here to tell you that it is easier than you think, and here is a step-by-step guide to prove it!
#1. Acquire Education on Investing in Multi Family Real Estate
First things first- start with proper real estate education. It is no secret that, indeed, investing in multi family real estate is a bit more complicated than investing in single family homes, but with the right amount of knowledge, you can avoid a lot of common mistakes. Therefore, to start off, you want to make sure you know more about this strategy than the average beginner.
A few things that can help you acquire knowledge include reading real estate blogs, books, and watching interviews or listening to podcasts with successful real estate investors. You can also find a mentor or network with professional investors and real estate agents. There are also many real estate courses and online classes that you can take for more in-depth knowledge. So really, there is no limit to the ways you can learn about buying multi family properties.
Feel free to check out Mashvisor’s blog for all sorts of topics on multi family investments.
#2. Figure Out the Financial Part
Before you move forward with any steps to acquire an investment property, go ahead and evaluate the financial aspect of investing in multi family real estate. First of all, think about your personal financial situation. Can you afford to save up some money for a down payment? Can you save up money for your personal expenses until your rental property actually starts generating a profit for you? Also, have you checked your credit score? Is it at a rate that qualifies you for a mortgage? Do you need to improve it, and if so, how are you planning on doing so?
There are a few options that you can look into for financing a multi family property. One option is owner occupied multi family mortgage programs. Whatever you go with, you need to put your ducks in a row in advance so that by the time you’re buying a multi family property, you’ve eliminated the number one concern of beginner multi family investors.
Here’s a quick guide on How to Get Your Finances in Order Before Buying an Investment Property.
#3. Locate a Profitable Real Estate Market
Now it’s time to conduct what we call a real estate market analysis. Basically, it consists of going through the different real estate markets and analyzing the local rental business. You want to look for average property prices, rents, yields, and most importantly, rental demand.
For each housing market, you can narrow in on specific neighborhoods and perform neighborhood analysis on areas that have multi family properties listed for sale. This analysis will reveal the average listing prices, the rental yields, the cap rate and the cash on cash return for residential real estate rentals. It will also help you determine the best rental strategy (Airbnb or traditional). In addition, you can get a better idea of the demographics and rental demand in that specific neighborhood as well as the type of tenants you can expect when investing in multi family real estate in that neighborhood.
#4. Start Searching For and Analyzing Multi Family Properties for Sale
Now that you’re through with the market research, it is time to look at the multi family homes for sale in the area of your choice. Even though a neighborhood analysis can provide you with an overall examination of the average return on investment metrics, it is necessary that you look at the numbers involving each investment property at hand. This process is called investment property analysis. In addition to calculating profitability, it will reveal all aspects of owning that property. Getting financed, planning your mortgage payments, your cash flow, and, of course, the occupancy rate are all elements that depend on the outcome of this procedure.
Related: What Is a Good Cap Rate When Investing in Multi Family Homes for Sale?
At this point, you can also decide on the type of multi family property you want to invest in. You can choose to start with a duplex, a triplex, or even a fourplex. Each of them can make for the best multi family real estate investment and provide multiple income streams.
Real estate technology, such as the multi family investment calculator, is a must-have for every beginner and even seasoned real estate investors. These tools can save you the time and effort of trying to get accurate results in examining a number of investment properties. And, since investing in multi family real estate is a bit risky for beginner investors, it is important that you invest in the proper tools to minimize mistakes.
Take a look at How to Use Mashvisor’s Rental Property Calculator to help you find and analyze multi family investment properties.
#5. Make an Offer, Negotiate, and Close the Deal
Once you’ve chosen the investment property which makes the most sense in terms of location and profit, it is time that you contact the seller. Make an offer and, most importantly, negotiate the deal. Don’t settle for the asking price right away. Also, perform a property inspection. Make sure it is in the condition described by the owner and that there is nothing that could affect the value of the investment property in the long run. Finish your bank approval process and all the related documents. Once you’ve settled everything and agreed on the deal, go ahead and close it.
Final Words
Investing in multi family real estate is neither difficult nor complicated as long as you know what it takes to start in the business. The risk element should not hold you back since it is inevitable in all kinds of business transactions and deals. What matters most is the amount of knowledge, your finances, the location, the real estate property analysis, and, of course, the tools you use in your multi family investment analysis. So, we invite you to use our Investment Property Calculator to find and analyze lucrative investment properties that match your criteria in a matter of minutes. We’ve helped numerous multi family investors start their journey, and we know we can provide you with all the necessary equipment to kick start your own real estate career successfully!