Category: Multifamily Investing

How to Analyze a Potential Rental Property

Building a portfolio of rental properties is an excellent way to increase wealth over time. However, there are a ton of things to think about before jumping into a deal.
How do you know if it’s a good investment? What things should you be looking at in order to make your decision?
This article will outline a variety of simple steps to take when analyzing a potential investment property. It includes a series of formulas, calculations and things to consider so you know whether or not it’s a good deal for you. No two deals are the same and no two investors are the same, so it will vary depending on your specific situation.

How to Analyze Potential Income

The potential income you can earn on a property is the first step in your analysis and there are several ways to do this. For this discussion, we will assume that the only income for the property will be monthly rent. Some properties also have storage, parking, laundry machines and other income, but we will assume only rent for now.

Gross Rent Multiplier (GRM)

The Gross Rent Multiplier is the sales price for that property divided by the total annual rent that you anticipate being able to collect. In this scenario, use the asking price on the property as your sales price. You might be able to get a better deal by negotiating well, but using the asking price will keep you on the conservative side as you do your calculations.
To determine how much you can charge for rent, take a look at other properties in the same neighborhood or similar neighborhoods. Do some comparative analyses of what other renters are paying for similar homes in similar neighborhoods. This will help you determine what you can charge for the property.
Now, you can simply do the math: sales price divided by total annual rent. This will give you a single number. It’s not a percentage or a number on a scale, but when you do the same analysis on multiple properties, you can compare them all to see how the GRM differs. The lower the GRM, the better.

The 1 Percent Rule

In a nutshell, this rule says the monthly gross income should be equal to or greater than one percent of the purchase price. Your monthly gross income is the total amount of income you are collecting on the property. Since we’re only talking about rental income in this discussion, this number is simply the amount you intend to charge for rent.
This is another great way to compare properties. Some will be within the one percent rule and others will not. It doesn’t mean you should walk away if they aren’t, because there are tons of other factors that affect the value of a deal, but it’s a great thing to look at while you’re doing your analysis.

Net Income

This calculation is the gross income minus the expenses. You can calculate this on a monthly or annual basis, depending on which specific number you’re interested in. If you want to know your cash flow, or how much you’ll be putting in the bank each month, calculate the monthly net income.
Your total income is the amount you will charge for rent and your total expenses will include your; taxes, insurance, HOA fees, utilities, and more. It is anything that you plan on paying for. Some landlords will wrap the cost of utilities, lawn care and other services into the rent payment and others will leave that to the tenant to pay. There’s no right answer, but be sure that you identify what you’ll be paying vs what the tenant will be responsible for.
To do the calculation, simply subtract your total expenses from your total income. This will give you an approximation of how much income you can plan to receive from this property on a monthly basis. If you want the annual figure, multiply the monthly rent by 12 and the total expenses by 12, then re-do the calculation.
*Pro Tip: Smart investors set aside a little bit of money each month for repairs, capital expenditures and vacancy. Be sure to include these items in your list of monthly expenses on the property to get a clear picture of net income.

Cash on Cash Return

This is a measure of the percent return that you can expect to have on your investment. It is the net income divided by the total investment. For this calculation, you need to consider the annual net income, rather than monthly as we calculated in the previous section.
To determine your total investment on the property, you will add the down payment, closing costs and the amount of any repairs you plan to do prior to allowing tenants to move in. It is basically all the cash that you have to invest while purchasing and upgrading the property versus the amount of money you are putting in your pocket every month.
Once you have all of the income and investment costs calculated, simply divide the income by the investment amount. This will give you a number with several decimal points. Multiply that number by 100 to find your return percentage. In this calculation, the higher the percentage, the better.

What Other Factors Are Important Besides Income?

Obviously, the numbers are the biggest indicator of whether or not a deal is actually a good deal. However, there are other factors to consider after determining that the numbers are working in your favor.

Housing Market Trends

One of the most important factors to consider after crunching all the numbers is the future of the property. You want to do some research on the current market value as well as what you think the house will do in the future.
The trends of a particular neighborhood or area of town will help you to better understand what this property is likely to do. If you look at some comps and they all seem to be losing value, you may want to reconsider the purchase.
If you’re planning on keeping the property for 10 or more years, it might be okay to purchase it even if the trends for that area aren’t going up right now. Regardless of trends, if you keep it for that long, you are likely to build a lot of equity in the home.
But if you’re planning on renting it out for a few years and then selling, you may want to look elsewhere. If the property values in that area come crashing down, you may find yourself upside down with the mortgage payments.

Commercial Development

Commercial development projects can have a huge impact on residential neighborhoods. Sometimes they can increase home values and sometimes they can negatively impact them. You should do some research on this, as well.
For example, a historically low value neighborhood that is undergoing some major commercial development is a really great opportunity for investors. If you get into the space at the right time, you can find some fantastic deals. “Buy low and sell high” as they say…
Purchase a home as low as you possibly can, keep it until the market recovers and grows, and then sell it for a much higher price. In the meantime, you can do a few upgrades and rent it out to pay for the mortgage. If the commercial development around the neighborhood is adding restaurants, retail locations and other amenities, chances are that the home’s value will increase as those projects are completed.


Equity is a huge piece of the puzzle that many investors forget to consider in their calculations. It is absolutely possible for several of the formulas above to give you less-than-desirable results and the deal is still a good one.
Why? Because at the end of the day, equity is king. (Well, cash is king, but maybe equity is the prince).
Simply stated, equity is the difference between the home’s market value and the amount you owe on the mortgage. If you have $50,000 in equity, that’s how much you should walk away with if you sold the house right now at market value, assuming all closing costs and other fees were covered by the buyer.

How Do I Increase Equity?

There are a variety of ways to ensure that you have plenty of equity in your rental property when it comes time to sell it.
The Down Payment: The minute you put a down payment on the property, assuming it’s a fair purchase price, you have at least that amount of equity in the home. If you have the cash to use, it can be a really good idea to put more down so you get better interest rates and lower mortgage payments.
Buy at a Discount: If you buy the home for a discounted price, or less than market value, you automatically have even more equity. Try to find a short sale, foreclosure, estate sale, divorce or someone who needs to get out quickly. People in these situations are generally highly motivated sellers and you can find a reasonable deal that is good for both parties.
Add Value: If you add value by doing various upgrades and renovations, you can almost force the property to appreciate in value. This can be a hit-or-miss strategy, so be sure to do your comp analysis to see what other properties in the area have and what they’re selling for before you spend a ton of money.
Buy and Hold: This is the most basic of all equity growth strategies. You basically buy the property and hold on to it for a long time. Pay the mortgage down over that time and you will naturally build equity.
Passive Price Appreciation: This strategy is very similar to the scenario we discussed regarding commercial development. If you choose properties in the right locations, it can be a great strategy for long-term ownership. If the neighborhood is up-and-coming, it can appreciate quickly.

How Much Work Does It Need?

Although you calculated these costs into many of the calculations earlier, it is still necessary to do a deeper dive. If you’re buying a house that needs to be renovated, you need to be strategic in doing so. Here are a few tips and tricks regarding renovations and upgrades.
Don’t go custom. You might love bright colors, funky patterns and custom designs, but this is an investment property – not your forever home. Resist the temptation to put in a bunch of custom fixtures and high-end features. The goal is to make the place safe, livable and appealing to the majority of people who will see it. Stick to the basics and save money in the process.
Use individual businesses for repairs. If you’re not able or willing to do the necessary repairs yourself, you should use individual service providers for the different items that need to be fixed. For example, if you need some plumbing and electrical upgrades, along with new carpet, it is tempting to get one general contractor to bid the whole job for you.
This is a BIG mistake. That general contractor will likely cost hundreds or thousands more than if you reached out to a plumber, an electrician and a flooring company. Your goal is to spend the least amount of money possible while making the property safe and livable. It doesn’t have to be perfect.
Only complete the necessary repairs. If you’re not planning to flip the house, there is no reason to go in and immediately rip everything out and replace it. As previously stated, you’re just trying to make it safe and livable. Do a full assessment of the home, or use the home inspection document from the purchase process. Choose the items that are the highest priority and complete those first. Then rent it out and start making that money back.
Over time, you can make other repairs and upgrades. But remember, your goal is to make money, not spend it, so only do what is necessary.


Buying a rental property is a huge investment. It is well worth your time to do the research and calculations on the front end to avoid painful consequences of a bad deal on the back end. Take your time to evaluate each property and find the deal that is best for you.
Image: Pixabay

How to Increase Your Rental Property’s Net Income

If you currently own a rental property, and your revenue is covering your expenses with a little extra to put in the bank, that’s awesome! But what if you could bank even more each month by simply thinking outside the box? What if you could increase your net revenue to double what it is right now?
Would you be interested in that?
There are so many ways to add value for your tenants that they would be willing to pay extra for. You can also get creative and utilize your property to create more income in other ways. All it takes is a little creativity and looking at things in a different way.

Rent Parking Spots

If you own a property in an area where parking is a high commodity, this is a no-brainer. Whether you’re in the city where people have to search for parking, or you’re close to a sports or music venue, you can cash in on it. And don’t worry, you can take care of your tenants, too!
Let’s say you own a single family home near a football stadium. If there is enough grass, a large driveway or otherwise, you can use that space and sell parking spots for a premium to the fans who are attending the event. All it takes is a sign with your price on it and someone to collect the cash and direct the cars to the right spots.
You can make this an attractive deal for your tenant, as well. Obviously, you need to ensure that they still have space to park during the events. After that, you can offer a portion of the profits to them, waive one month of rent, or any other offer that they might accept.
The key is to make it a win-win for both of you. If you’re both making money off the deal and it doesn’t destroy the property, go for it!

Rent Extra Storage Space

It should come as no surprise that people LOVE their stuff, and that some take it to an extreme level to the point that they can’t fit everything in their home. This can be a major advantage for you if you choose use the opportunity as a money-making venture. The major concern is whether or not you have the space to rent out.
Renting additional space works really well when you own a multi-family property. The living spaces are likely smaller than in a single family home, which means people will be looking for extra space to store their things. You can sell storage space to them in garages, attics, basements or extra units in the building. If you’re super savvy, you can make it a goal to own a multi-family property and a storage building that are next door, or in close proximity to one another.
If you own a single family home, it can be a little more complicated, unless you have another spot nearby. This works really well when you’re renting a carriage house, an apartment over your garage or a mother-in-law suite. These situations almost always have a larger house connected or on the same property, which gives you the opportunity to rent additional space.

Install Solar Panels

This might seem like an odd one, but you really can make it work to your advantage. Installing solar panels on the roof of your rental property can be a major cash cow for you. You need to first do the research on whether or not it’s a good investment for you by considering the amount of time it will take to recoup the cost and how old the roof is at the time of installation.
Once you decide that it’s a good investment, you can get it done and start making some extra money. There are multiple ways to accomplish the same thing, too.

Include Electricity in the Rent

One option is to install the solar panels and then increase the price of rent to include electricity. You then ultimately become the utility, and your tenants will pay you instead of the electric company. Whether it’s a single or multi-family establishment, you are likely to create enough energy to cover everything that is being used and have some left over.

Sell Additional Energy Back to the Grid

Since power grids are becoming smarter and smarter, many of them now offer a two-way transfer. This means that if you have excess power after running all the necessary electricity at your property for the month, you can sell the rest back to the grid. This is not an option that you would do “instead of” selling to tenants. It would be “in addition to”.
There are more than 40 states in the U.S. that allow this type of transfer. It’s called “net metering”. Not only will you receive a check from the power company for the excess energy, you can also get some great tax benefits, as well. Start by checking with the power company in your area to find out if this is an option for you.

Offer Consumer Services to Your Tenants

Many people are willing to pay for convenient, time-saving services in and around their homes. Depending on the expendable income of the tenants in your property, this could be a really creative and smart way to generate more income. Think about all the different services that you, your family and friends use on a regular basis. Can you recreate them?
Each of the following is an example of a service that you could offer to your tenants for an additional fee. You can choose to offer them a la cart, or as a package deal. You can also include them in the rent, or have your tenants pay separately. Either way, it’s worth considering!

Lawn Car Services

Offering lawn services like grass cutting, tree trimming, gardening, wedding, fertilizing and more is a great place to start. There are tons of people who don’t have the time or the desire to do these sorts of jobs around their homes. If you have the ability to do it yourself or to sub-contract it out, it’s definitely worth considering.

Cleaning Services

This is another really great option to not only serve your tenants, but to generate additional revenue for your business. Consider the cost of doing it yourself versus hiring a company to do it and conduct a basic ROI evaluation. If the numbers look good, give it a try and see how it goes.

Dry-Cleaning Services

If you really want to go above and beyond, you can partner with a local dry cleaner to offer a pick-up and drop-off service for your tenants. In this scenario, your tenants could leave their dry-cleaning on the front door for the cleaner (or you) to come pick it up. Once it’s done, it is delivered back to their door. This is a convenient way to do additional business with your tenants and they will appreciate it, as well.

Grocery Delivery

Think about all the apps and grocery stores that offer this service! Can you find a local business who is currently doing it, or setup one for yourself and hire someone to do it? It might take a little more setup time to get this to work, but it’s definitely an option worth exploring. Home grocery delivery is a rapidly growing service that you could cash in on.

Dog Walking

Although there are lots of dog-walking apps and services on the market, your tenants are likely to trust whoever you recommend for these types of things. You can offer dog-walking on a daily basis, as well as pet-sitting when your tenants go on vacation. This allows the pet to stay comfortable at home, rather than being boarded at a kennel and gives the tenant peace-of-mind that their furry friend is well taken care of.

Baby Sitting

If you have a really great relationship with your tenants, they might even trust your recommendation on who should watch their kids. Whether it’s your own teenagers who are looking to make some cash, or you hire a contractor to do it, this is another excellent service. Parents are always looking for a great babysitter to take care of the kids while they take a night off. And who better to help them with it than you?

Less Creative Options

Obviously, all of the options listed above will take some due diligence, planning and potential bargaining with local service providers. If that’s not something you’re interested in doing, there are other ways to ensure you are making top dollar for each property you own.

Refinance When It Makes Sense

This is one of the best ways to increase your net income each month. We all know that the market fluctuates on a regular basis. We go through periods where interest rates are through the roof and others where they are amazingly low.
If you really stay on top of the market and what it’s doing, you’ll be in a great place to refinance at just the right time. If you get a great deal and don’t spend a ton on closing costs and other fees, you can really improve your revenue situation substantially.
It’s really helpful to shop it on an annual basis, too. Just like car insurance and other such necessities, many people become complacent and just pay their premiums year after year without ever shopping around. Be smart about it and always be on the lookout for what might be the right option.
A great way to accomplish this is to start by finding a lender whom you trust. If you have a lender or an advisor who can help you identify the right time to refinance, that’s worth its weight in gold. Ask them to reach out to you when the market is primed for great refinancing deals. Don’t worry – you’re not an inconvenience. I promise you, they have a list of prospects to call when the market is at just the right spot.

Investigate Tax Benefits

This is another area where many investors are under informed and don’t get the full tax benefit of their properties. We don’t recommend trying to figure this out on your own unless you’re a tax professional. But we DO recommend looking in to the matter by contacting a tax professional and discussing all of the options.
More often than not, investors will learn about additional tax benefits they didn’t know they had. These can be the result of renovations that you made to the property, energy-efficiencies that you added but didn’t realize you could get a break for, and so on. Your best bet is to keep really good track of all the improvements and investments you make to the property. Then share those with your tax advisor every year when you file your taxes. You’ll be amazed what is possible.


The key to all of this is just learning to think outside the box. Don’t get complacent as an investor and think that the monthly rent from your tenants is your only opportunity. The sky is the limit when it comes to offering additional services and amenities that your tenants might be willing to pay for.
Always do the research on the potential ROI, the costs associated with the service or services you want to offer and what type of insurance may or may not be necessary. If you think insurance will be necessary for the service you want to offer, bid that out, as well. Go into the decision with as much information as possible for optimal results.
Hopefully, this article has sparked some ideas for you. As an investor, you are the CEO of your real estate business and you get to call the shots. The more creative and forward-thinking you can be, the better. Not only will you be able to make more money from your rental properties, but your tenants will have the pleasure of convenient services that are offered from the same person they trust – YOU!
Image: Pixabay

Why You Should Consider Multifamily Investing

If you’re a real estate investor at any level, you know the value of time and money. You likely got into this space for the sole purpose of creating a passive income for yourself and your family. But how much time and effort are you spending on your investments and is there a way to become more efficient?
The answer is YES! There is absolutely a way to become more efficient and make more money at the same time. This is where multi-family housing comes in to the picture. It is definitely worth considering and we will discuss how and why a little later in this article.

What is Multi-Family Housing?

Multi-Family housing is just a fancy word for apartments and condominiums. It is basically a structure or a community full of buildings that have “units” where families live. Multiple families living in the same building… hence the term “multi-family”.

Why is Multi-Family Housing a More Efficient Investment?

There are a variety of reasons why this is a more efficient investment. As I said in the beginning, if you know the value of time and money, you’ll be interested to know how to maximize both.

It Has Higher Returns Than Other Types of Property

Multi-family real estate has had the highest average annual returns for more than 25 years. It has outperformed industrial, retail, hotel and other investments. In fact, between 1992-2017, it produced 9.75% returns for its investors.
Smart investors consistently look for options that will produce high returns and put their money to the best use possible. Some investors are more risk-averse than others, but multi-family is usually a safe investment for all the reasons we will discuss in this article. It’s a smart decision and housing will always be a need, regardless of what is happening in the economy or the world.

The Market Share is Increasing

Studies show that both millennials and baby boomers are increasingly becoming renters rather than homeowners. For millennials in particular, homeownership is often out of reach due to the steady increase in home prices. For baby boomers, it is likely the desire to spend time traveling or doing leisure activities, rather than house and yard work.
Regardless of the reasons for renting, both of these generations represent a large portion of the marketplace. Millennials are the largest generation in U.S. history and if the majority of them are renters, the multi-family real estate business will continue to grow.

It Is More Agile Than Commercial Investments

Due to the fact that multi-family housing enjoys shorter-term leasing agreements, owners and investors can adjust pricing more quickly as the market changes. For example, rent on an apartment will typically be 6-months, 12-months or even 18-24 months. Conversely, on office space and other commercial structures, the lease agreement could be 5, 10, 20 years or longer.
Because of the shorter-term leases, landlords can increase the rent more often and more quickly to adjust when the market changes and they need more cash flow. Other commercial investors do not enjoy this same level of agility.

Property Management is Much Easier on a Single Property

Multi-family structures are an extremely efficient form of investing because you can attract renters all in one place, rather than having 20 independent houses all over town. Chances are very good that you only have one mortgage for the whole property, along with one fee for landscaping, grounds keeping, insurance and potentially a property manager. It is much more time-efficient to operate in this capacity because you only have one location to deal with.


When buying, selling and renting your various properties, you would need to work with a ton more people on single-family homes than you would with a multi-family property. With individual homes, you would likely need to work with 20 different sellers and 20 different inspectors at 20 different addresses! With a multi-family property, it’s one seller, one inspector and one address for the same 20 renters.
The buying and selling process is more streamlined in this scenario, which saves a ton of time for the investor. Once the purchasing process is complete, it’s all about getting the units rented out and the cash flow coming in.


You can also consider the increased efficiency from a marketing standpoint. If you own 20 individual single-family homes and you have to market them individually, that can be really time consuming, not to mention expensive. You need a different landing page for each one, different photos, different descriptions, etc. If they are in different neighborhoods, you will also need different marketing strategies based on the target audience.
With a multi-family structure that has 20 units inside, you can be much more efficient. Yes, you still need 20 renters and you still need to market the units, but it takes a lot less work. You can have one landing page, one description, one gallery full of photos and so on. Renters who are looking for homes in your area will be able to see all that you have to offer in one spot, which is convenient for them, as well.
If you own and operate the structure, you can also brand it however you like. Whether you’re interested in forming an LLC or your own brand of apartment or condo, you have the ability to do that. If not, that’s okay too.

What if I Can’t Afford a Multi-Family Structure?

If you’re not yet in a place where you can afford to purchase a multi-family housing structure on your own, that doesn’t mean you’re completely out of the game. It just means that you need to do some other forms of investing and saving more cash until you get there. You can develop a basic strategy for building your portfolio and go from there.
There are also some key considerations when it comes to getting approved to buy a multi-family structure vs a single-family home. I recommend talking to your lender before assuming it’s not possible for you. Many banks will approve the purchase of a multi-family property much more quickly than a single-family home.


Because multi-family units have a track record of producing a steady cash flow from month to month. Even if the property has a few vacancies, it is highly likely that the renters in the other units provide more than enough cash to cover the expenses of owning the building. When a lender looks at all of these details combined, they see a much lower risk and are more likely to lend the money.
If your lender says no, don’t fret! Investing in multi-family housing doesn’t always mean owning the structure. It could mean other forms of investing where you purchase shares in someone else’s projects.

Investment Apps

One of the strategies that is growing in popularity and making investing more accessible is the creation of real estate investment apps. YES! There’s an app for that!
If you’re thinking I’m crazy, just hear me out for a second. Real estate is an industry that is highly dependent on data, location and money. What is the one device that you probably already use for all of those things? You guessed it – your phone.
You probably use your phone for GPS, real estate searches, internet browsing/research and you might also log into your bank accounts from your phone. If you’re comfortable using it for all of these things, why not download an app that will help you do them all at the same time?

Not All Real Estate Apps Are Created Equal

Depending on what type of investor you are, there will be different apps that will help you accomplish your goals. There are apps specifically designed for certain aspects of real estate investing such as commercial structures or fix-and-flip homes. There are other apps that are more general and all-inclusive. Which one will work for you really depends on your area of interest.
Fundrise is a great option if you’re looking for an all-in-one solution. It gives you access to both residential and commercial investments, but requires a certain investment level for each tier. You have to choose a tier when you open your account: core, advanced or premium. The three tiers have minimum investment requirements of $1,000, $10,000 and $100,000, respectively.
This app functions more like a traditional investment account at a financial institution. You invest the money and they choose the investments. This is excellent for investors who are okay with giving control of their money to someone else. But if you want full control, this one is not for you.
Yieldstreet is another app that gives investors access to investment options that used to be reserved for hedge funds, crowdfunding investors and ultra-wealthy people. With this app, you will have access to commercial and residential properties. The residential properties are mostly multi-family, high-producing entities.
This is a great option if you have a little cash to invest, but not enough to purchase an entire building. You can start here and as your investment grows, you can save up to purchase that investment property.
Property Fixer is an excellent resource for investors who like to fix-and-flip both single-family and multi-family residences. It can help you do a full analysis of the property while onsite, rather than trying to create spreadsheets and such when you get back to the office. It will include things such as buying and holding costs, projected return on investment and mortgage calculators.
If you upgrade to the pro version, you can create portfolios, brand your PDF files and send them to clients or investors right from the app. It also lets you itemize expenses and upload photos for a complete package related to a single property.
Ten-X is almost like an auction site. It will help you find the best deals on commercial properties in your area. Both buyers and sellers use this app, which also has a robust web presence. It his highly data-driven to help you make the best choices for your investment portfolio.
However, this is an online sales mechanism. So, if you’re in a place where you’re not quite ready to buy yet, you’ll be better off going with an app that lets you invest or buy shares, rather than the whole property.

Private Brokers

If apps aren’t your thing, you can always sit down with a private investment broker and ask about your options. Much like the apps listed above, many brokers can offer access to a variety of properties that you wouldn’t otherwise be privy to. They can help you manage your investments and choose the right properties in areas that are increasing in value.
When talking to a broker, be sure to consider their minimum investment amounts, fee schedules and limitations. How much control will you have over your own money vs how much they will control it for you. Only you can make the decision on how much control you want to relinquish to a broker.


Multi-family real estate is an excellent investment for both beginners and seasoned professionals. It has historically produced higher returns with lower risk than many other options. For this reason, it is an excellent way to diversify your investment portfolio with peace of mind.
Whether you choose to invest by purchasing a building, or through an app or brokerage, you can feel good about your decision. As the market for multi-family housing continues to grow, your investments should too.

Image: Pixabay

Fixing and Flipping Multifamily Real Estate Investments

For any business you can think of, the end goal of the owner or investor or the entrepreneur, as it is commonly known, is to make profits. This is the same with multifamily real estate investments; every real estate investor wants to make an above average return on all the money that is invested.

This article aims to analyze all the issues relating to fixing and flipping multifamily real estate investments to make profits. Although this may not be ideal or appropriate for some real estate aficionados, those who can pull off the fixing and flipping arrangement do make substantial financial gains. The fix and the flip process can pose a significant challenge to certain real estate investors; however, to begin the process, there is a need for proper funding.

These can come in the form of loans, which is also made available in some instances for individual properties and even for more experienced investors who wants to flip more than one real estate property at once.

These loans come in a whole lot of forms which include:
Cash-out refinancing (which involves refinancing one property to fix and flip another one)
Home equity lines of credit
Bridge loans
Hard Money Loans
Permanent Loans (not typical in flipping)

It is worthy to note that the process of fixing and flipping real estate can be carried out with any property, no matter its enormity. The types of highlighted loans above are to help support the purchase of single or multifamily investments.

For fixing and flipping operations, funding is a real issue, and if you are a serious investor looking for a source of financing, hard money loans are a good source of funding. The hard money loan option may be more expensive than the other types of funding though.

The demand for fix and flip processes concerning multifamily real estate dwellings is only increasing these days. Many fix and flip professionals are choosing this path because the number of rental households has increased by more than 15%, and this upward growth is expected to continue.

This is because many teenagers are expected to leave their homes and become renters themselves, further boosting the multifamily real estate market. The need for independence from parents is real around this age, so it is not surprising.

Path to Fix and Flip Profits:

When it comes to multifamily real estate investments, fix and flip, investors have to compete with other buyers for the properties on the ground. Fixing and flipping has the sole principle of making use of a certain amount of money to make some brief renovations; in all, a general uplift to improve the valuation of a real estate property before selling it at an excellent price.

This way, an excellent profit is made. Concerning multifamily real estate, seasoned fix and flip investors still have to contend with repair and flip newbies in the industry; those who do not have the required skills and expertise.

These new entrants into the industry tend to make things difficult for experts. These newbies tend to buy existing properties for more, making it difficult for them to come across an affordable fix and flip property. On the path to fix and flip profits, you should seriously consider multifamily investments.

All you have to do at first is to be conservative enough in calculating the potential returns. The rule made is by seasoned investors is to estimate the property’s rental income, then subtract half of that amount for monthly expenses and then subtract the mortgage payment from what remains.

Then if the property cash flow does not cover these costs, you can either decide to negotiate a lower purchase price or look for a building in another area that supports higher rent payments.

Fix and Flipping MultiFamily Properties:

As mentioned earlier, projections have concluded on the path that rentals on properties are most likely to be on the increase. Many seasoned real estate investors have turned to multifamily real estate holdings, all in a bid to diversify their holdings and increase their profit.

As the demand for rental housing units continues to rise, the fix and flip experts are also noticing it is expected that with multifamily holdings, they will undoubtedly require more significant investment and more work for you to gain maximum benefits.

For a first time investor, they are seeking to make new inroads into the world of real estate investments. Getting to sell a multifamily holding can be very challenging. Even for experienced investors, the rules have to be followed. As it is the norm, the search for a buyer can be more challenging than for single family buyers.

For example, in America, property owners and investors alike are coming to terms with the fact that they can increase their profit by choosing to purchase multifamily units. This inadvertently opens up a new path for fix and flip real estate investors as there is a higher chance of success when you decide to fix and flip a multifamily property.

Funding for fixing and flipping multifamily real estate holdings, many platforms on the internet and even near you offer programs for this. Most only have programs designed for clients with strong credit scores. Also, those who have the needed experience with renovating and owning multifamily properties are given a chance.

Very strong net worth and liquidity also allow for flexibility to be exercised in the decision making. Some of the prerequisites which usually are considered include:
• The multifamily property must contain at least five (5) units of housing.
• In some instances, projects with at least 50% occupancy are also considered.
• At least a credit score of 670 is needed.
• Loans from 250,000 to $5,000,000 can be provided with no limit placed on the number of multifamily housing units you can flip.
• Finally, loans up to 80% of the purchase price with rates which are as low as 8.5% and a 24-month term.

But first this disclaimer, this is not a get rich quick method. If you are looking for a means of getting rich quickly, then real estate investing is certainly not for you.

An alternative to fixing and flipping real estate holdings is to buy properties in perfect locations where you are sure after doing the necessary valuations; the value is going to increase. Having a great strategy at this point is very crucial. This strategy is key to knowing when to improve property values and also knowing when to sell and reinvest the funds in other profitable properties. One very sure way to amass wealth and reach that dream milestone is to buy real estate rental properties, then fix and flip them accordingly.

• You can decide to flip ten (10) houses that make $100,000 of profit.
• Flip 20 houses that make $50,000 of profit on average.
• Or you can also decide to flip 40 houses that make $25,000 of profit on average.

Markets also influence these profits. As if you live in a market with lower property prices, the real strategy will be to flip smaller houses with smaller profits but at an increased volume. An excellent example of this is buying $50,000 homes that you can resell for $120,000 and can net you $25,000 to $30,000 after renovations, closing costs, or commission and taxes. This you can repeat about 3 to 4 times per year. If you live in a place like Los Angeles; it is more realistic to find flips with $100,000 t0 $200,000 of profit.

At this juncture, it is only ideal to find out the real reasons investors flip multifamily real estate units. In the real estate industry, there is a big market for single family homes. It is only natural for flippers out there to cater to the needs of this large population. However, in contemporary times, there is an increase in renting.

• It is usual for more people to have a hard time believing that investing in a home is the best option they have. They are beginning to see primary residences as more of liabilities than assets.
• Some have been burned in times past as they have bought homes that sunk considerably in value after a certain period; contrary to laws of real estate investment.
• The increasing proportion of the workforce is becoming mobile to the latest advancements in technology; hence, they are beginning to like the flexibility renting provides.

These reasons are highlighted as a result of accessing the opinions of industry experts on the latest realities facing rents and mortgages in developed societies. Multifamily properties are the ideal property to flip, but why decide to flip multifamily real estate holdings?

Reasons for Flipping Multifamily Properties:

Marketability: Much has been mentioned of the fact that many areas are seeing a rise in their rental rates, and the absolute economic crisis turned many people from homeowners to renters, and this has made it more difficult for single family flippers.

The markets for single family flippers have changed and shrunk considerably over time, and only fewer people qualify for mortgages. Higher rents also mean higher selling prices for investment properties, and this is a significant factor for commercial multifamily.

• The Exit Strategy: When talking about single family units compared to multifamily housing units, any experienced single family fixers and flippers will always tell you to plan your exit strategy properly. Part of the procedure is to determine the After-Repaired Value accurately.

You need to know the amount you can sell the place for after the repairs have been made.
It is common knowledge that with single family homes, the rent will barely cover the mortgage, which includes insurance and taxes. With the inclusion of maintenance items, you might be losing money.

However, with multifamily properties, these properties are unarguably cash cows. You can choose to cover the mortgage payments with rent from one or two units and receive pure profits from the other units. And if your multifamily flipping does not work, you can simply rent it out and make some money, with no loss on your part.

Tax Advantages: This should not be mistaken as tax advice coming from a professional. But the buyers of multifamily residential properties, especially the buyers who live in one unit, can take advantage of both the homeowner and tax deductions. In addition to the edge to buyers, there are excellent incentives for flippers who get to buy multifamily residential.

Finally, it should be known that fixing and flipping are done for the sole purpose of making a profit. However, real estate industry leaders believe that it is one niche that is fraught with challenges considering the many rules and special considerations to be made. However, you need to be experienced enough to pull this off with multifamily real estate units, so you do not run at a loss.

Picture: Pixabay

Financial Independence By Investing In Multifamily Real Estate

One of the reasons for going into business, particularly the multifamily investment niche of real estate, is solely to create wealth and passive income. Current investors in this niche have made it known over and over again, how multifamily real estate investing has done that for them. However, one fundamental question to consider is how one can create wealth, satisfying a need in the process without financial independence? If you are a real estate investor, now more than ever is the time to escape the corporate rat race and become financially independent. Based on the main goals of any investor, the main aim of this content is to highlight the tips you can make use of in achieving this sole objective. However, it is only reasonable we inform that achieving financial independence is not as easy as we would be stating here. You need to be intentional about being financially independent. Learning how to create wealth and improve your business dealings can be very challenging.
If we were to conduct a poll today amidst real estate investors on why they chose the real estate sector to invest their resources, sure we would have lots of reasons to consider. Although some might treat it as a partial source of income, others commit fully to it with financial independence becoming the unifying goal. This has been the dream of many, and real estate has been one of the best ways of achieving it. Financial independence is achieved by an investor when the passive income, the returns from activities in the real estate sector, is more than their monthly expenses. In such a way that you have lots to spare. Although this might sound risky or seem like a very long process that can only be achieved in years, one uphill climb, it is achievable and very realistic, giving the factors involved. It has even been confirmed that rental property investors make cool cash, achieve financial independence through investing in real estate. As mentioned earlier, here are a few tips we advise the reader to strictly adhere to if one is so particular about achieving financial independence. These tips include:

• Get Educated:

One of the best things one can do to improve oneself is to get educated. It does not cost a thing to stay updated with the latest developments in the real estate world. As a real estate investor with your eyes on the goal, you need to be abreast of all the back and forth going on between the bigwigs in the industry, and you need to have an idea of the latest moves to make that are sure to bring in the needed profits. In line with achieving financial independence, although there is no real need for formal education or a college degree, one still needs to dedicate lots of time to reading and to grow at the same time. Successful real estate investors have achieved financial independence by knowing how to play the right cards at the right time. Investors are constantly educating themselves about the best investment strategies and investment properties. With investment property types including either single-family homes or multifamily settings while strategies include rental properties, commercial real estate investing, with the inclusion of Airbnb rentals. They seem to be growing in value every day, and you should consider investing in them.

• Financial Planning:

How can one achieve financial independence without top-notch financial planning? For most real estate investors, there is always a template more like a written plan as to how to achieve financial independence. It was observed that having a plan makes you more likely to achieve the set-out goals and objectives. Financial planning in the real estate investment niche is said to refer to all the processes of determining all that is related to the financing of your rental property. In plain terms, it solely involves anything that settles all your real estate concerns; the acquiring of a mortgage that fully suits your real estate investment. It also supports the calculating of your expenses and the cash flow through the rental property in focus.
In terms of mortgage and mortgage payments, they are referred to as the foundations of real estate financial planning. Having debts is not bad, but continuously piling up the debts to such an extent, it starts to impede your ability to save, that is a source of concern. This development, in the long run, tends to affect your ability to achieve financial independence as early as you would have wanted. While in terms of expenses, optimum financial planning should involve defining your passive income. To determine this number, real estate investors should consider all the monthly expenses, which should include repairs, maintenance, utilities, electricity and water bills, taxes, vacancy rates, property management, etc. For a real estate investor to achieve financial independence with all that has been listed out, an estimate of the expenses must be made to determine the extent by which they affect the odds of achieving financial independence through real estate investments.

• Endeavor to Grow Your Real Estate Portfolio:

This is no rocket science, but the more your investments, the higher the passive income you can derive from it. Growing your real estate investment portfolio is one sure way of attaining financial independence. The more you invest in real estate properties, the more passive income you earn. That is not all therein, and you are likely to earn more passive income from diverse real estate holdings. This also protects the real estate property investors from the dynamic economy and real estate investing market fluctuations, which ultimately allows for financial stability regardless of the conditions around.
To achieve this talked about financial independence, we have a lot to discuss about strategies one can apply to attain it in no distant time. Some of these are discussed as follows:

• Calculate Your Freedom Number:

This is one of the first things to do; the freedom number is not a unit or a property count. It refers to the amount of income you need to cover your current expenses or the amount of passive income. Which is more or less equal to the amount you are receiving from your current active full-time job, or that which can fully afford your full lifestyle. The best way to arrive at this number is to open up an excel spreadsheet and make a list of all current expenses. If you also intend to replace the current income and become a full-time real estate investor, then your freedom number automatically becomes your pre-taxed income. If you intend to improve or keep your current lifestyle, then you need to determine how much it would cost you, and that is referred to as your freedom number. To make this clearer, imagine a scenario where you currently earn $50,000 a year at a job, and you make calculations that you would need an additional $10,000 to maintain your current lifestyle. Your freedom number is about $60,000 yearly.

• How Much do I need to invest in real estate to achieve my calculated freedom number?

The next thing on the list is to calculate how many rental properties a real estate investor needs to be involved in before you achieve the calculated freedom number. This calculation is solely based on specific investment criteria as a real estate investor. For example, if your investment specification is only to purchase certain properties that are sure to achieve a 10% cash-on-cash return. Then you will need more money to achieve your $60,000 a year freedom number, Roughly about $600,000.

• Creating a Freedom Timeline:

After calculating your freedom number and the amount, you would need to invest in real estate to get that much as passive income, which caters to all the expenses that maintains your current lifestyle. Next is to create a freedom timeline, which is all about how often you will purchase properties to achieve your freedom number. These timelines do vary with all depending on current situations, investment strategies adopted, market, etc. the best recommendation is to have a freedom date then backdate a timeline.
For example, if you already have it in mind to quit your active paying job in the next 10 (ten) years to focus on real estate investments, following from previous examples of your freedom number is $60,000. You need to purchase about 60 units for a start and a cash flow of about $100 a month. The money that would be available as a rising real estate investor to be used as down payment will be any amount of money you have saved up, which is money you have set aside from your full-time job.
After purchasing your first housing units, you will have an additional stream, which is the $100 a month; and how long can you wait before you purchase your next property? And as from that point, you will have an additional $200 a month towards the next payment. At some other point, you will ultimately have enough equity in the earlier rental unit purchases that will be able to be refinanced and, in the long run, buy more units.

• Implementing your Freedom Timeline:

The last thing to consider after calculating your freedom number, determining how many units you need to buy, is to create a timeline. As it is the time to start making high-level purchases like a new real estate entrepreneur. One of the strategies that have been adopted in recent times is the BRRRR strategy superbly coined by Brandon Turner at BiggerPockets. The named acronym stands for buy, rehab, rent, refinance and repeat. By buying, you can purchase old or distressed properties, which translates to the level of distress you are capable of managing, and this will go a long way in you achieving the financial independence you so much want. By rehab, you only need to subcontract to someone who is a great general contractor to carry out random property repairs and general renovations.

As for renting, you need to lease your newly renovated asset to great residents who, to an extent, share your ideas. Individuals who would adequately make use of your property; as their use would not make you accumulate unnecessary expenses on repairs. Then on to refinancing, you can choose to obtain a new loan on the property in a bid to pull out the equity created from the rehabilitation carried out. By repeating the entire process, by using the money from refinancing, you can achieve financial independence. Honestly, we can only outline these steps and hope they work for you. The number of obstacles you are likely to face as a real estate investor or entrepreneur varies in a lot of ways, as achieving financial independence can be very daunting without mincing words. However, this is not to discourage you. Still, with consistent effort, partnering with reliable individuals, patience and resourcefulness are one of the positive ways to work through the many obstacles you are likely to face.
Many professionals or veterans in the real estate sector have spoken on some tricks that worked in their favor. Some of these tricks have helped them to quickly navigate the many obstacles that have barred others on their way to achieving financial independence from real estate investing:

• The use of Tax Benefits.

• Appreciation:

You must have heard of the common term in real estate that units with proper management appreciate over time. It is certainly one factor that comes into play in the real estate sector. For these individuals, they have been able to do an equity strip from the properties, and they do not have to pay taxes when they borrow money against the properties. The equity that was created by the appreciation of the properties acquired can be pulled out and used as a down payment to purchase other properties.

• Leverage:

Financial independence can also be achieved by leveraging properties with debt; in this way, they were able to control virtually 100% of the property by putting less than 100% down while also compounding the benefits of inflation. There are many ways to arrive at financial independence, but one central factor is the diligence and patience to see the processes through. We can only wish you the very best on your journey.

Picture: Pixabay

Single Family vs. Multifamily Family Real Estate Investing

When the term real estate is mentioned, it is mostly linked to investment opportunities, and it is seen in financial circles as a credible means of getting legal, enduring and long-lasting value for money. In plain terms, it is said to refer to properties, lands, buildings, and anything you might think of that links land and money together. As unusual as this may seem, this term is said to even include air rights above the property and the underground rights below the land. Many legal struggles have erupted over this in contemporary times; hence, it is imperative to fully define the term which would be a recurring term in this compilation. The word means precisely its literal meaning; it is said to refer to a real entity, a physical property, something that can be seen with the eyes. Most constitutions have now restricted the term to those with legal rights to the property. There are generally four (4) types of real estate, namely;

    • Commercial real estate:

This comprises of shopping centers, malls, hotels, academic buildings, hotels, and office installations. Apartment buildings are regarded as commercial entities even though they are used as residential spaces. In so far, they are erected to provide income.

    • Industrial real estate:

This is said to include all buildings and properties used for manufacturing. It also encompasses buildings erected for purposes such as for research, the production, storage and distribution of goods.

    • Land:

In economic terms, this is said to refer to any vacant piece of land, a marked portion, a geographically bounded space, farms, and settlements. Categories include subdivision and site assembly plots, undeveloped and early development or reused land.

    • Residential real estate:

This includes both homes under construction, newly constructed homes, and even resale homes. One prevalent category is the single-family homes; Condos, duplexes, bungalows are also included in this category.


Real estate investment is that which is said to be a viable alternative for those who are unable to stand the unpredictability of the stock market. Real estate is also one which is a better investment option for investors who wanted to take their earnings from investing a notch higher. Instead of setting their funds only to be managed by someone else. For an arrangement that was prone to many external factors. One very effective strategy utilized in real estate is rental property investing. This is adopted mostly by investors who want a steady income aside from the slow, trickling, but sudden increases in the value of their leading portfolio. This is one strategy that has been adopted by many investors, including the moguls in the investment world such as Zhang Xin and Donald Bren were said to have built up a large percentage of their fortunes by investing in a range of commercial and residential properties. Some other multimillionaires have also made incredible profits from developing various commercial and residential properties. In terms of residential real estate, one of the types of real estate investments highlighted above, there are two types of properties one can invest in; they are Single-Family and multi-family investing. Single-family apartments are those with only one available building or space to rent. They are mostly residential buildings, but they do not have that much potential for maximized returns compared to multi-family investing. Comparing to multi-family investing, they are commonly known as apartment complexes; that is residential buildings built together with more than one rentable space. Over time, some of the advantages of investing in multi-family real estate settings include;

• You should consider that growing a single portfolio takes less time: The real estate multifamily setting is very comfortable for an individual who wants to build a relatively large property. Taking control of a single 20-unit apartment building is easier than managing 20 different home settings with the possibility of working individually on each property, different realtors, separate loans, while all the back and forth can easily be made by investing in a single multi-residential property.

• Multi-family Real estate investment is more expensive, but it is a lot easier to finance:
As expected, the cost of acquiring a multi-family property would be higher than investing in a single-family setting. But this should not be a bother, as multi-family settings are way easier to handle financially. Securing a single-family property can go for at least $40,000, while a multi-family environment can go up to the tune of millions. And the choice may be obvious, but you might have to reconsider. Getting loans for a multi-family property is far more comfortable than for a single-family property due to the significant cash flow that multi-family properties generate every month. The possibility of foreclosure on a multi-family asset is not as high as that of a single-family property.

• The owner is in a position to make reasonable financial decisions:
This is in the case of real estate investors who do not participate in the actual management of their properties. Instead of monitoring themselves, they seek a competent property manager who does all the work and monitoring. The manager is paid an agreed percentage of the monthly cash flow the property generates. In light of this, instead of splitting percentage margins across different properties, only a single property is considered. This allows for reasonable financial decisions to be made and will enable investors to take maximum advantage of the services property managers offer.

Multi-family investment settings provide a whole lot of opportunities. With these types of investments, it is not advisable to jump into investing without a template or the needed expertise and management capabilities. It is ideal to make your findings before jumping just into any multi-family investment window. Randomly window shopping would not be enough as it requires proper planning and financial evaluation of the about to be acquired property. The natural progression for serious investments in the world of real estate is to start with local family single family properties before moving on up to large scale multifamily establishments. The possibilities with prompt investment in multifamily units are endless and the industry has continued to grow with some positive projections going into the future.

Some reasons to invest in multi-family investing:

Aside from the boundless, timeless opportunities presented by real estate multi-family investing, investors generally do not shift from single-family real estate investment to multi-family investing. Some reasons precede most decisions. Some of the reasons alluded to the shift include the fact that it saves time; this is generally the biggest perk of investing in multi-family properties. Opinions have agreed on the singular point that it allows for efficiency in management and increases the possibility of making better, informed decisions.

Another primary reason is it allows for better control. Real estate investors all agree that investing in multi-family units allows for more control. Control to mean that since net operating incomes drive a lot of multi-family real estate investments, buyers tend to also look at it as a business, and as for the operator, you can effectively drive the net income which directly translates to the value one can get out of that.

Factors that influence multi-family investing:

Nearly everyone has the dreams of investing in a credible venture that would steadily bring in income. Real estate also affords that opportunity, but there are certain factors, qualities that an investor is expected to possess and how certain factors can influence a potential investor’s decision in the long run. These perceived factors are highly influential in the decision-making process. Some of these factors are:

  • Business plan/preparedness
  • Capital
  • Partnership
  • Experience
  • Mindset/Comfort Level

As mentioned earlier, the typical progression among real estate investors is from starting with smaller, scattered single-family units then gradually easing into large scale multifamily units that can house multiple families, with a central factor still on making a stable profit. It is known that once this progression is made, there are specific ways of making a significantly higher income by looking for off-market deals. Newer and larger multifamily settings are listed with a competent broker coupled with some assured online sources. These multi-family settings typically classified from the more modern class A units to the much older class D units. In descriptive terms, a value-adding multifamily unit generally is hard to find, as they are not readily advertised or listed. However, searching for class B off-market multifamily properties are considered as viable alternatives. The more massive and more complex the property a real estate investor is looking for, the harder it is to find on the market. To identify and acquire top-notch multi-family investment opportunities, one has to be creative. Many of the deals involved in landing these properties are built on forming enduring relationships with partners or one investor to the other. Another is through extensive networking, and if you are referred from one investor to the next. As mentioned earlier, finding quality multi-family housing units remains a severe challenge. Many cites in the United States are opening up and attracting real estate investors. In real estate, plenty of programs exist for when a potential investor is searching for single-family housing units. But this is not the case with multi-family settings. It is advised that thinking outside the box is required in these instances; to locate functional multi-family units suitable for investing in.

Every investor seeks to make maximum profit on whatever venture that eyes are set upon. You would not want to dabble into an idea without considering its Dos and Don’ts. Here are a few tips that are sure to come in handy when you are looking for a multi-family real estate opportunity.

• Calculate your cash flow:

This is highly crucial, as estimated mortgage dues are part of the equation in this step. Calculating your estimated monthly income or cash flow, be sure of the money you want to invest in your chosen portfolio, then subtract the monthly NOI agreement from your potential property. The simple calculation highlighted above would help to determine your cash flow estimate, and in the long run, learning if investing at that particular point in time would be worth it.

• Know your limit rate:

Before investing in real estate, multi-family properties for that matter, be sure to calculate your limit rate. To determine your limit rate, the simple thing to do is to take the monthly NOI, multiply it by 12 which is the number of months in a year to get the annual number and then proceed to divide that amount by the total mortgage amount. The main thing to understand as regards to the limit rate is to know that increases in the amount do not readily translate into better fortunes. It may indicate risk and a higher return. One common thing brokers do is to capture a rate between 5-10% and anything smaller, the investment may not have enough income. You want to be sure you fully understand all the risks associated with investing.

• Remember to find your 50%:

One of the best ways of analyzing potential investment opportunities is to check out the numbers to determine the potential gross income. This is done by calculating the difference between the expected rent and projected expenses in owning the setup. When one does not have to know all information about a potential property opportunity, only what one has to do is to use the 50% rule. The difference between the estimated revenue and projected monthly expenses is the net operating revenue and it is USUALLY around 50%. This is a very rough estimate.

• What to check before deciding to invest in multi-family settings:

Taking random walks or a drive through the neighborhood is seen as means by which one can come across a property begging for an investor. This is not always the case as finding the ideal estate requires much more than random navigation. Investors need a credible groundwork to analyze and evaluate the financial consequences of investing in a property. The following checklist should be considered before investing in a real estate opportunity;

• Cost
• The seller
• Location
• The total number of units.

Be sure to do your groundwork before considering investing in a multi-family property.

Introduction to Apartment & Multifamily Investing

How many times have you seen a late-night commercial featuring some real estate guru promising to get rich quick returns with “no money down”? While most of us are smart enough to identify these ads as too good to be true, the excitement surrounding investing in real estate, specifically in multifamily investing, is well deserved. For many people, investing in multifamily properties is a pathway to create passive income and financial independence for themselves and their families.

When done properly, this unique corner of the real estate market can serve as a second career, and for the savvy investor could make them enough money to retire comfortably at a young age, kicking back and collecting checks. As with most things in investing however, winning big requires taking risks and doing your homework, so over the course of this article we will dive into the basics of apartment and multi-family investing to give you an entry point into this incredible opportunity.

Multifamily investing is exactly what it sounds like. An investor purchases an apartment building, a duplex, triplex, or quadruplex, and then rents these spaces to multiple different tenants to profit from the income.

For example, there are many kinds of properties that an investor can choose from when deciding on real estate investments. The most common types being apartments, townhomes, condos, duplex, triplex, and quadruplex units. Each of these is described briefly below.

  • Apartments: Apartments are most likely the most familiar type of multi-family unit. An apartment building is a large structure made up of multiple self-contained living spaces. Each apartment has its own kitchen, bathroom, and sleeping / living areas. Apartment buildings can have anywhere from 2 to 200 “units” and costs to purchase range accordingly. An important distinction to make here is that the term “apartment” usually implies that the building owner owns each unit, and the tenant is simply a renter.
    • Condos: A condo, short for condominium, is just like an apartment in that they are complexes of self-contained units that range in size. The key differentiating factor is ownership. Typically, condos are purchased from the building owner, each tenant is purchasing the unit that they live in rather than renting.
    • Townhomes: Townhomes are like the bigger brother of condominiums. Where a condominium tends to be smaller, townhomes tend to be a series of multi-story houses, built with an adjoining wall to the townhome next to it. Like condos, these units are usually purchased by the tenant, while the communal areas like pools, lawns, and other public spaces are owned by all the tenants equally or the company who owns the complex.
    • Duplex: A duplex refers to a property that in many ways resembles a single house, but that has been split into 2 units. Many times, “duplex” describes a single structure with 2 front doors, one leading to the upstairs unit, and the other leading to the downstairs unit.
    • Triplex: After learning what a duplex is, the other “plex” types of properties are self-explanatory. A “triplex” simply refers to a single house structure with 3 units.
    • Quadruplex: As mentioned above, the “plex” property types all fall into the same category, the only difference being the number of units within the house. A “quadruplex”, as the name indicates is a single house with 4 units inside.

So, what is the purpose of multi-family investing. Why would someone want to buy one of these multi-unit properties? As you may have guessed, the primary reason is to make money! As a brief example, a successful multi-family investor would seek to buy a duplex that cost him $1,500 per month to purchase, and then rent each unit out for $1,000 per month. This generates $2,000 in income from renting that not only covers the cost of the mortgage, but it also puts an additional $500 per month into the owner’s pocket. It sounds simple enough, but there is a lot that goes into a successful real estate “deal”.

Aside from simple income, renting out a multi-family property allows an owner to capitalize on his property. Rather than simply owning the building, why not have it generating some income? Each month that you are collecting rent and paying yourself whatever you collect above the monthly cost to you, you are also having an asset purchased in your name that has real value and should appreciate in value over time. This double barrel effect of adding cash to your pocket AND “equity”, or ownership in a property, to your personal assets column has a powerful positive impact on net worth and greatly accelerates a person’s pathway to retirement if that’s something they desire to do. Renting a property, when done successfully, should contribute to your personal net worth in two different ways.

So, if all that sounds good to you, your probably curious as to how someone gets started in real estate investment. You’ve already taken the first step in reading this guide, as the more information you have, the higher your chances of making a successful investment decision. So, step one is to read as much as you can regarding the type of multi-family investing that you’d like to do. The internet is a powerful thing and you can save yourself lots of trouble simply by gathering others experiences and using them to inform your decision making.

Once you feel comfortable, and potentially have consulted with a professional or two, you need to start looking into the methods that you can use to acquire a property. There are many ways that one can go about doing this aside from simply putting down a bunch of cash to purchase a building or a complex. Let’s face it, most of us don’t have hundreds of thousands of dollars in liquid assets that we can sink into a house right now. This is where the concept of financing comes in. Just like you finance a car or take out a student loan to spread large costs out over time, using a mortgage allows you to put a small portion of the purchase price down today, and to pay in installments moving forwards.

The most common method of financing a mortgage is with a 30 year note in which you work with a bank who lends you the funds that you’ll need to complete the purchase. From there you will work with the bank to pay off the loan over time. It is critical to understand this part of the process, because your monthly payment will have a direct impact on your ability to “cash flow” a property. “Cash flowing” a property is real estate jargon for a successful deal. A property that is “cash flowing” is a property that produces an income to the owner above all the costs associate with the mortgage, renovation, and upkeep on the property.

Lets now take a more in depth look at the different methods that an investor can use to secure funding and move forward with a purchase. Aside from a simple bank loan or traditional mortgage, the government has many attractive programs for investors who are purchasing for the first time as well as for investors who are seeking to renovate properties. While this guide is not long enough to cover a comprehensive list of all the financing methods which exist, we will look at the most common and explain the costs and benefits associated with each.

While some real estate transactions are completed in full at the time of purchase, this is very rare. Obviously if someone has enough money sitting in their bank account to purchase their desired property, they are perfectly able to do so. Investors who are looking for true no money down strategies could approach what is known as a “hard money lender” someone with lots of cash who can buy a property outright. They will usually require their own method of repayment and will take a portion of the profit from your deal. This strategy is good for beginners who can find a passive partner. They put up the money, you find the deal and work out all its moving parts.

While this strategy is not totally uncommon, most of the time some sort of long-term payment is arranged at the time of sale. Most transactions involve an upfront payment of funds called the “down payment” followed by a series of monthly payments made up of some principal (the actual loan amount) as well as interest (the fee that you pay for borrowing the money).

Securing a loan will require a check of your credit history, an evaluation of your income, and your ability to make payments moving forward. If you are not able to put 20% down at the time of purchase, many institutions will require an additional monthly fee for “PMI” or mortgage insurance due to the increased risk of the loan for the bank.

For first time borrowers who may have less credit history or income, an FHA loan, short for Federal Housing Authority, can be helpful. This is very common tool used for first time buyers looking to break into investing as well. This is a special type of loan offered to first time home purchasers through the federal government that allows them to put as little as 3.5% down on a property. FHA loan standards are also lower due to the backing of the federal government, meaning lower credit scores and incomes may be eligible to receive the loan.

Once you have researched your preferred financing method and have started working with a mortgage broker to see what you qualify for its time to begin looking at properties. The research done on the front end of your real estate deal could make or break you. The more time you spend analyzing and understanding the features of the piece of property you are purchasing, the more likely you are to be successful in your first venture. Typically, investors look for a few qualities of property, although like many things in investing broadly, this comes with some risks.

Look for properties in good locations, with good schools nearby or near a downtown commercial hub. When selecting a multi-family investment property, you must put yourself in the shoes of your future tenants. When evaluating a home, imagine who might live there, this will give you a better idea of the potential challenges you might face in renting. Will you be marketing to college students each summer and trying to fill your property? Or will you be renting to families with young children. Will you be renting to long term elderly tenants? Study the demographics and behaviors in your area and use this information to inform your purchasing decision, especially if you’re a first-time buyer.

For the true rookie to real estate investing, one of the most common methods of getting started is referred to as “house hacking”. This strategy involves purchasing a duplex or other multi-family property, living in one of your units, and using the other units as rental income to offset your monthly rent costs. Many house hackers can live for next to nothing each month while having a lifetime asset purchased for them. This strategy is a great starting point as you will be able to be on site 24/7 to learn about upkeep, maintenance, and to keep an eye on tenants.

Aside from the intangible aspects of a property like location and local culture, many spreadsheets and applications are available for free online to do more concrete analysis of a property. Find one that works for you and evaluate your potential investment from a number’s perspective. How much are similar units renting for? Will you have to account for vacancy throughout the year? What about a savings fund for potential repairs? Try to factor in things like cost of garbage removal, cable, and internet. At this point you will be able to decide if you offer these services as a package with your property or if you should leave those to tenants to pay.

At this stage you can also evaluate the cost per square foot and some other metrics of your investment to see what kind of deal you may or may not be getting. While in the research stage it is important to ask lots of questions and seek guidance from others who have more experience. At the end of the day more people putting their heads together usually leads to a better result.

Done properly, multi-family investing can allow someone, with relatively little money down, to create a passive stream of income for themselves, all the while purchasing real estate that will most likely increase in value indefinitely over time if its kept up and monitored. Given the potential rewards, the risks are great. Before jumping into anything its important to understand that a bad real estate transaction can permanently hobble you financially. A purchase involving a house that needs thousands more in repairs than anticipated, or one that goes unrented for extended periods of time can send investors into bankruptcy and completely derail your financial plans. Investors should steer clear of complicated transactions their first time around and should only proceed after consulting with several professionals.

One of the most difficult aspects of multi-family investing is the family part. You occasionally will deal with tenants who do not pay on time, who destroy your property, and who can make managing your property a nightmare. Forums across the internet are full of stories of “tenants from hell” who appeared to be perfectly normal before destroying their units and worse. Carefully vet any tenants who you agree to rent to, its difficult to get someone out of their unit once an agreement has been signed, once again, careful research on the front end could save you lots of headaches. Ultimately your name is on the deed and anything your renters do while on the property will come back on you if not dealt with properly.

To summarize the article in a few lines, multi-family investing is a challenging and potentially risky endeavor. It requires time and patience to find good deals and executing them is even more challenging. For those who can navigate these challenges however, a potential life changing income source, and long-term wealth building can be attained. To learn more about investing in real estate, and to get into more detailed guides, click here for our FAQ page, or here to subscribe to our weekly newsletter.

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