If you have the right team and the right formula on board, investing in multifamily properties can be profitable. In this article, learn how to avoid big pitfalls and set yourself up for multifamily investment success.
Perhaps you’re a newcomer to the multifamily investment arena or you are a current apartment owner who wishes to improve your returns. Well, you are in very good company. The world’s ultra high net worth individuals, those with $30 million or more in assets, understand the value of physical assets and allocate their money accordingly, including real estate.1
At Better World properties LLC, two questions we often hear are: 1) “How do I invest in multifamily properties?” and 2) “Where are the best apartment deals?”
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. Mailbox money they call it. 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 a lot of 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 already be in the right loop to be included on the radar.
Recognizing where these 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 an cold iced tea and remain friends.
According to a Morningstar study, “…managed funds have generally underperformed their passive counterparts, especially over longer time horizons, and experienced higher mortality rates (that is, many are merged or closed).2 The average investor on Openfolio had a gain of roughly 5 percent in 2016.3 With professional, licensed managed multifamily investments, suddenly, you’re earning 20% on your money every year, instead of 5% at a brilliantly managed fund.
Six Factors Influencing Multifamily Investment Success
Multi-family investments can return multiple times average stock market returns. Six key factors heavily influence successful multifamily outcomes:
- Professional: Underwriting, Due Diligence, Property Management and Process Improvement
- 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. Key word throughout: professional. 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 here.
The advantage of the Better World Family of Companies complete Apartment Life Cycle Solution is that we can 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. Our investors then 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 us to be very agile in the marketplace.
Recognizing value that others often miss is one of the things we are known for. A trained eye can tell how extractable that value really is and 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 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 understanding and recognizing demographic trends is key.
4) 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 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.
Seeing The Vision Long Before the Deal is Done
Seeing the long-term, successful vision of an apartment property investment from the first glimpse of a prospectus or a 2-hour walk-through of a potential investment property takes years of experience. They just don’t teach this stuff 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. You can read more about case studies here.
Professionals Prefer Professionals
Accredited investors trust proven professionals with their money. While all investing involves some degree of risk, real estate may be the least risky of all, especially when one does their homework correctly. Be sure that you are dealing with professionals who treat your investments like their own.
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 John Steinbeck passionately observed, “Texas is a state of mind. Texas is an obsession. Above all, Texas is a nation in every sense of the word.”