Many investors who invest in multifamily real estate do so for various reasons: multifamily investments offer relatively low risk due to economies of scale, they offer an investment vehicle that can keep pace with inflation by increasing rental income as the market rises, and they can produce both cash flow and appreciation.
Most investors are looking for an investment that is not cash flow negative. Commonly, many investors looking to purchase multifamily properties are usually either exchanging one investment property into another or are looking to invest 20% for smaller properties such as a duplex or upwards of 50% for large apartment buildings.
The first step in investing in multifamily properties is to speak with a lender about how much of a deposit is needed for a particular price point. This will allow you to focus on the properties that fit your investment goals. There are many factors that decide on a multifamily investment’s return: purchase price, area, building condition and price of local residential real estate.
It is important to become familiar with the market and be able to analyze the potential property before making a purchase. Important indicators are the CAP rate, GRM, PPSF, Price per unit, vacancy rate and rental history, rental income, operating expenses, debt service, and cash flow.
Once an analysis is performed and an agreement is reached on a property including price and terms, the listing agent will provide a full history of the multifamily units including the last two years of income and expenses. This is the period when the buyer will have a chance to fully analyze the numbers, and paint a picture of what is reasonable to expect of the building’s
future performance. This is also the buyer’s chance to conduct a full inspection of the building.
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