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Multifamily housing is a valuable real estate investment, when you understand what you’re taking on. Generally speaking, real estate values increase over time, but the true value in real estate is the cash flow it can generate for your portfolio. Multifamily apartments have a lot of advantages. It can be easy to get financing. If you have a property management company, you get passive income on your investment. Nevertheless, there are a few risks that you should know about before getting in too deep. Here are three things to consider when you buy multifamily apartments.
When you purchase personal real estate, like a home, you may only need 10% or less as a down payment. When you buy multifamily apartments or commercial real estate, you may need 20% or more as a down payment to get good rates and terms. On top of that down payment, you may need to make repairs and renovations to the property to make it more marketable and profitable. If the current vacancy rate is higher than 7%, the property may not be in a good area to attract tenants or may need significant renovations to upgrade the units. Investing in multifamily real estate can be cost-prohibitive when you actually do the numbers.
Dealing with maintenance on a residential property can be time-consuming. Once you start managing multiple units of a multifamily property, it can take even more time and attention. Being a landlord isn’t just about taking rent each month. You need to be aware of the laws and regulations that govern property management, in order to avoid legal issues. Tracking maintenance and handling bookkeeping will be demanding. Marketing a new multifamily apartment isn’t easy either. Without a good management plan before making the purchase, you might find that you get in over your head. You may want to consider a property management company to maximize your earnings.
In some markets, it’s easy to get started in multifamily real estate. In others, there are local laws and regulations that may limit what you can charge and what you can do to increase your earnings. You also need to be watchful over what your competition is doing. It’s not just competition for tenants, but also for buildings and land in the area. You should know the market you’re buying into and consider the 10 to 20 year plan for growth of the area.
Making the investment into multifamily apartments is a good step for any investor. Consider a professional partner to help you get the most out of your investment. The Estes Group offers clients throughout the Gulf states, our boutique real estate development services. We can help you with every aspect of your real estate investments, from purchase to management.
Call us at 601-362-9633 or contact us online to find out more about how we can support your plan to buy multifamily apartments.