Multi-family real estate may be recession-proof, but it’s not foolproof.
As a multi-family investor, there are challenges and risks you have to navigate to boost your odds of success. If you remain unaware of the mistakes of others, you may end up making them yourself.
Here are five common multi-family real estate mistakes to avoid:
If you want to raise rents without losing tenants, you’ve got to keep an eye on the rental market. One way to improve the value of your multi-family property is to charge market rents. Charge too little, and you’re leaving money on the table. Charge too much, and you’ll scare tenants away.
Think of it this way, if your tenant’s lease is up, and they find a comparable unit in another building that’s $300/mo cheaper, it’s advantageous for them to move. Keep an eye on rental comps in your area, and adjust accordingly.
Diversifying your portfolio helps reduce risk. As any seasoned real estate investor will tell you, investing $1,000 in ten buildings is better than investing $10,000 in one. When it comes to multi-family real estate, we recommend investing in different property types and different geographic locations. If the last fifteen years have taught us anything, it’s that anything can happen at any time. The more diversified you are, the more secure you’ll be.
If you’re transitioning from single-family to multi-family real estate, you might think you can save that 8% – 12% by managing the property yourself.
It’s. Not. Worth. It.
One of the benefits of multi-family real estate is that hiring a property management company makes sense. They handle all your tenant interactions for you. That’s a lot of extra work you no longer have to worry about — and it’s worth it.
Instead of finding tenants, conducting background checks, handling rent, responding to maintenance requests, dealing with tenants who are falling behind on rent, and about a million other little things, you can live your life or spend that time looking for your next worthwhile investment.
Newbie multi-family property investors are often in for a rude awakening. Your apartment complex doesn’t automatically come with tenants. You may need to cover rental expenses from the start to keep the property running. If the rental market isn’t on your side, you might have to splurge for better amenities and upgrades to attract tenants, which also cuts into your bottom line.
To get a better idea of how much your costs and expenses will be, conduct a thorough market analysis before you invest.
This brings us to our final common mistake to avoid:
Last but definitely not least…
If you’re choosing to invest locally because you’re familiar with the area, you could be making a huge mistake.
Before you invest anything, you should conduct a real estate market analysis (a.k.a. a comparative market analysis). This market analysis can be daunting because there’s a lot to think about when inspecting a potential investment property, including:
You have to identify the values of comparable buildings, how much their tenants are paying, and what amenities they have. Also, you must compare current, pending, and expired listings of similar properties to better understand how much this investment will cost. And that’s just the start of your research.
If you want to find the best deal, you should conduct this research in numerous markets, not just where you live.
You can invest with InvestNOW Capital. We’ve already done that research for you. Our experts only invest in the best of the best, so you can co-invest in a building with us and earn rental income and appreciation, and enjoy the tax benefits for little work on your part.