With the right team and the right formula, investing in multifamily properties can be profitable. In this article, learn how to avoid pitfalls and a five-step formula that’s been proven time and again for multifamily investment success.
Success Requires A Formula
Whether a newcomer to the multifamily investment arena looking to build your apartment portfolio or a current apartment owner/developer or multifamily investment group who wishes to improve ROI, multifamily investing provides multiple wealth building strategies.
Is multifamily investing easy? No. Is it profitable? That depends. For those who invest in professional property management, apartment investments can beat the markets and provide an admirable long-term return on investment. It’s fondly referred to as mailbox money. A prudent multifamily investor is often hands-off, letting the professional property management company do what they do best – manage apartments.
Successful multifamily real estate investing requires knowledge, experience, nourishment, cultivation, support, some chutzpah and an educated “feel” for which direction the market is heading. Syndicators and brokers provide a valuable service by connecting serious investors with the best opportunities. It is often a who-knows-who business. Those who have been in the business for years have valuable connections.
Real property is exchanged for real money, not futures or dividends. A multi-family asset becomes more valuable when it can produce higher income. Reducing operating costs quickly increases income. When executed correctly, buying off market creates instant equity. These deals go quickly and one must be in the right loop to be included on the radar.
Recognizing where opportunities are within multiple layers of an apartment asset is a coveted skillset. At Better World Properties LLC, we have decades of experience in digging through layers. We can recognize an apartment deal quicker than a duck on a June bug and more importantly can recognize a bad apartment deal and respectfully walk away and still share a cold iced tea or a mulled cider and remain friends.
According to NerdWallet, the average stock market return is, well…not average. One thing that is guaranteed with the stock market over time is volatility. With professional, licensed managed multifamily investments, it is possible to earn 20% on your money, instead of 5% at a brilliantly managed fund. Multi-family investments can return multiple times average stock market returns.
Five Step Formula to Multifamily Investment Success
Five key factors heavily influence successful multifamily investment outcomes:
- Professional Underwriting, Due Diligence, Property Management and Process Improvement
- Equity and Appreciation
- Cash Flow
1) Professional: Underwriting, Due Diligence, Property Management and Apartment Process Improvement
Licensed, professional apartment property management, strategic financing solutions and apartment consulting services quickly pay for themselves. While these are important individual steps, each step also strategically builds upon the next. At the Better World Family of Companies, we offer all of these services under one roof.
Better World Holdings LLC provides apartment deal generation, closing and financing. Better World Consulting provides multifamily process and performance consulting and Better World Properties LLC provides professional and licensed apartment property management, due diligence, acquisition, property rehabilitation and disposition. You can read more about our services here.
At the Better World Family of Companies, our complete Apartment Life Cycle Solution all under one roof allows us to find the right investment, perform experienced, professional due diligence, create equity through intelligent acquisition, improve property performance, increase cash flow, reposition and grow your portfolio from one property to one hundred properties. Our investors have one source, one contact and one touchpoint when managing their apartment investments. That is powerful. Our unique ability to provide all of these services under one roof deal allows our investors agility in the marketplace.
2) Equity and Appreciation
Recognizing value that others often miss is one of the things we are known for. A trained eye can tell how extractable value really is, whether it is something that should be quickly scooped up or unapologetically passed over. This alone can make or break your multifamily investment. Is it possible to create sizeable equity the day you buy a property? You bet your big bottom dollar.
Appreciation can be accelerated by conducting professional due diligence, understanding the intricacies of multifamily markets and knowing Texas like we do. Transitional neighborhoods that are on the cusp of change can provide fast appreciation. Knowing where to look and recognizing demographic trends is key.
3) Cash Flow
If an apartment property doesn’t cash flow, it was either purchased incorrectly or it is being managed incorrectly. Simple as that. Cash flow is what keeps your apartment portfolio alive while it builds more equity. Improving processes that improve cash flow keeps the wheels turning.
At Better World Properties LLC, we cultivate and nurture relationships with vendors, lenders, communities, utilities and many of the services and regulatory agencies that intersect with apartment ownership. We are out in front of them every day doing business. They are an important part of successful multifamily investment and we treat them as such. These relationships help us keep our properties running smoothly.
An inexperienced apartment investor who does not utilize professional property management can quickly find themselves overwhelmed, overcharged, overspent and in the hole. These investors often come to us to help pull them out of a free fall and they want us to fix it fast.
Borrowing too much can be fatal. Highly leveraged deals are like hungry tigers that always have to be fed. Minimizing debt lowers risk. Strategic and creative financing is an important part of every deal. Don’t buy more than you can afford. Start smaller if necessary. Buy 150 units instead of 300 units. Refinance and pull equity out of deals to finance bigger deals. This is one of our greatest joys, assisting our investors successfully stair step up their portfolios year after year.
Knowing when to quickly take a deal and when to walk away is one of the best-honed skills in successful multifamily investing. Sometimes quick decisions are necessary in a fast moving market. Distinguishing between profitable value-add opportunities and stagnant opportunities can sometimes be a fine line. This requires the ability to drill down in a particular market and ferret out fundamentals. Just because a property is cheap doesn’t mean it’s a deal. Patience, persistence and staying true to core investment principles and values go a long way in building a solid and profitable laddered multifamily portfolio. From day one, professional due diligence and professional apartment property management pays for itself over and over again.
Envisioning the Successful Result Before a Deal is Acquired
Vision is a gift. Seeing long-term, successful vision of an apartment property investment from the first glimpse of a prospectus or a professional 2-hour walk-through takes years of experience. They just don’t teach these skills in a classroom. You have to roll up your sleeves, get your boots dirty, turn over a few rocks and brush aside a few snakes. We aren’t afraid to get our boots dirty. In fact, we prefer it. We want to look under the hood of the apartment properties we manage for our multifamily investors. We look at the books and the boiler rooms. You can read more about case studies here.
Is Texas On Your Mind? If Not, Perhaps It Should Be
Investing in Texas has been at the top of the list of the world’s wealthiest investors for decades. If you would like to learn more about apartment investing in Texas or improving the results of your Texas apartment properties, give us a call. Better yet, come visit. We love to talk apartments.
As Davy Crockett so eloquently stated,
“I must say as to what I have seen of Texas, it is the garden spot of the world. The best land & best prospects for health I ever saw is here, and I do believe it is a fortune to any man to come here. There is a world of country to settle.”
DAVY CROCKETT, letter to his children, January 9, 1836