SS208: What Nobody Tells You About Multifamily Investing

SS208: What Nobody Tells You About Multifamily Investing

Multifamily investing can be an excellent vehicle for creating passive income and generating wealth, but many aspects of it are not commonly discussed. In this episode, Charles discusses some lesser-known truths and challenges of multifamily investing.

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Talking Points:

  • I believe that multifamily investing is one of the best asset classes for growing your net worth and creating semi-passive income. Since being a multifamily investor over the past 2 decades, I have realized several things about this investment strategy. I am not saying multifamily is a sub-par investment strategy. Still, many lesser-known truths are not regularly broadcasted online and on podcasts, which might require investors to rethink their investment philosophy.
  • Understanding It’s a Business. When you purchase a multifamily property, you quickly realize that you now own a business. Each tenant is a client. The people you hire to maintain the property are your employees. Owners who do everything themselves are now the sole proprietors who cannot grow their businesses since they are unwilling to hire anyone. The owners who understand this and hire professional management, build a team, and implement systems are the true investors and business owners.
  • Multifamily Investing is Capital-Intensive. Social media and the internet are littered with blogs and posts that explain how you can purchase multifamily with no money down or, worse yet, that you can purchase a property with no money. Yes, you might be able to find a property owner who will seller finance their property to you with 0% down, but then what? How will you make repairs, prepare units for rent, and replace the roof or HVAC system? Real estate, especially multifamily real estate, is capital intensive, and investors who do not have the proper repair and reserve funds set aside are slated for failure. If you don’t have much money, try starting with a smaller property before graduating to larger properties. I began with 3-unit properties, and I learned a ton in a very short period of time.
  • Cashflow is Not Immediate. Many multifamily properties will not immediately cash flow from day 1. When we purchase an apartment complex, I call it the initial stabilization period, which can last 3-12 months, depending on the size and condition of the property. Yes, rent will be collected during this period, and you might be cash-flowing. Still, we are value-added investors, so most or all of this cash flow stays in the property to help correct deferred maintenance issues, make upgrades, evict bad tenants, prepare units for rent, etc. The goal during this stage is to immediately correct the major issues, significant repairs, and tenant problems. It is where the property gets worse so it can get better. In other words, the owners are not taking any money out of the property. Once the property has turned the corner, and what is left is interior unit upgrades as tenants move, this is where owners can begin taking small distributions.
  • Property Management Determines Success. Your property manager’s quality will determine your property’s success, and I have seen this many times firsthand. Good managers have a good team of people who will understand how to handle all aspects of the investment business. From dealing with difficult tenants to working with contractors. Property managers effectively manage the property’s finances while also maintaining the property’s condition. Good managers find cost-effective strategies for solving problems. I also find that I speak to good managers less since they can correct most issues themselves without pulling me in.
    • If you want to learn how to hire a property manager, you can check out episode SS82: How to Hire the Right Property Manager for Your Properties.
  • The Ultimate Goal is to Pay Off the Property. One recurring theme I see with successful investors who have owned the property for 10-15+ years is that their mortgages have been paid off or paid way down. Yes, they might take some money out of the property when they need to refinance, but their loan-to-values are low. This contradicts many gurus who boast investment strategies where investors consistently overleverage properties to buy more. A mentor of mine years back told me that it is OK to leverage properties with higher loan-to-values when starting, but you need to scale that leverage back sooner rather than later. When that leverage has been scaled back, you will start making consistent cash flow while having additional breathing room if your property, the economy, or the market experiences a pullback.
  • It’s a Long-Term Investment Strategy. Wealth is made in real estate when it is held for many years. Yes, you might make some quick money flipping properties, but if your real goal is wealth and passive income. You must buy good properties, manage them well, and hold them for years.
  • It’s Not Passive. You hear it all the time in real estate: “passive income,” and I am guilty of this, too. However, it is important to understand that a good property manager might make your investment semi-passive, but it will never be fully passive. When I built my first portfolio of properties, I had a great property manager I spoke to monthly and would exchange emails and calls with people in his office a few times a month. This is what I call semi-passive. I was out of the day-to-day, but when there were issues, or major repairs were happening, I was brought in. It is not an issue, but it is not entirely passive. I started having my VA handle many small tasks, but it is still important to make this distinction.

Multifamily investing is very rewarding but requires capital, patience, a team, and a great property manager. Buying good properties in good areas with long-term debt and hiring solid property management will solve most of your problems before you start.

Transcript:

Charles:
Did you know most multifamily properties don’t cashflow for months or even years after you purchase them. I’ve been in the multifamily real estate investing game for over 18 years, and trust me, there’s a lot They don’t teach you in books or online. Owning multifamily property sounds passive, but here’s the truth, multifamily investing is running a business. Welcome to Strategy Saturday. I’m Charles Carlo, and today we’re going beyond the hype of multifamily investing. This episode isn’t just about the basics. You’ll learn the surprising realities that can make or break your success. So let’s get started. I believe that multifamily investing is one of the best asset classes for growing your net worth and creating semi-passive income. Since being a multifamily investor over the last couple decades, I’ve realized several things about this investment strategy. And I’m not saying multifamily is a subpar investment strategy. Still many lesser known truths are not regularly broadcasted online on podcasts on YouTube, which might require investors to rethink their investment philosophy and their approach.

Charles:
Number one is understanding it’s a business. So when you purchase a multi-family property, you quickly realize that you now own a business. Each tenant is a client. The people you hire to maintain the property are pretty much your employees. Owners who do everything themselves are now the sole proprietors who cannot grow their businesses since they’re unwilling to hire anyone else. And the owners who understand this and hire professional management, build a team and implement systems are the true investors in real estate business owners. Number two is multifamily investing is capital intensive. So social media and the internet are littered with blogs and posts that explain how you can purchase multifamily with no money down, or worse yet, you can purchase a property with no money whatsoever. Yes, you might be able to find a property owner who will sell or finance their property to you with 0% down.

Charles:
But then what? How will you make repairs? Prepare units for rent and replace the roof or the HVAC system? Real estate, especially multifamily real estate, is capital intensive and investors who do not have the proper we reserve funds, whether it’s for repairs or just reserve funds set aside, are slated for failure. And if you don’t have much money, try starting with smaller properties before graduating to larger properties. I myself began with three unit properties and I learned a ton in a very short period of time. Number three is cashflow is not immediate. Many multifamily properties will not immediately cash flow from day one when we purchase an apartment complex, I call it the initial stabilization period, which can last three to 12 months depending on the size and the condition of the property. Yes, rent will be collected during this period and you might be cash flowing still.

Charles:
We are value added investors, so most or all of this cash flow stays in the property to help correct deferred maintenance issues, make upgrades, affect bad tenants, prepare units for rent, et cetera. The goal during this stage is to immediately correct the major issues, significant repairs, tenant problems. It is where the property gets worse so we can get better. In other words, the owners are not taking any money out of the property. And once the property is kind of turned the corner and what is left now is the interior unit upgrades as tenants move and those are re-rented after work is done. This is where owners can begin taking out some small distributions. Number four is property management determine success. So your property manager’s qualities will determine your property success. And I’ve seen this many times firsthand. Good managers have a good team of people who will understand how to handle all aspects of the investment business from dealing with difficult tenants to working with contractors.

Charles:
Property managers effectively manage the property’s finances, while also maintain the property’s condition. And good managers find cost-effective strategies for solving problems. I also find that I speak to good managers less since they can correct most issues themselves without pulling me into ’em. If you wanna learn about how to hire a property manager, you can check out episode SS 82, that’s episode SS 82 about how to hire the right property manager for your properties. Number five is the ultimate goal is to pay off the property. Now, one recurring theme I see with successful investors, usually mom and pop investors who have owned their properties for 10 to 15 plus years is that their mortgages haven’t paid off or paid way down. Yes, some might have some money out on a mortgage and when they need it, they refinance it and they’ll take a little bit more money out, but their loan to values are really low.

Charles:
And this contradicts many gurus who boast investment strategies where investors consistently over leverage properties to buy more and more and more. And a mentor of mine years back told me that it’s okay to leverage properties with little higher loan to values when you’re starting, but you need to scale that leverage back sooner than later. And when that leverage has been scaled back, you will start making consistent cash flow while having additional breathing room if your property, the economy, or the market experiences a pullback. Number six is there’s a long-term investment strategy. So wealth has made in real estate when it’s held for many years, decades. And yes, you might make some quick money flipping properties, but if your real goal is wealth and passive income, you must buy good properties, manage them well and hold them for years. Number seven is it’s not passive. And you hear this all the time in real estate, passive income, and I’m guilty of this too.

Charles:
However, it is important to understand that a good property manager might make your property, your investment semi passive, but it’ll never be fully passive. When I built my first portfolio of properties, I had a great property manager and I spoke to monthly and would exchange emails and calls with people in his office a few times a month. And this is what I call semi-passive. I was out of the day-to-day, but when there were issues or major repairs that were happening, I was brought in. It’s not an issue, but it was not entirely passive. And I started having my VA handle many small tasks, but it was, it’s really important to make this distinction because if you’re getting into it for something fully passive, this is not what you’re looking at. So multifamily investing is a very rewarding but requires capital patient’s, a team, and a great property manager, and buying good properties in good areas with long-term debt and hiring solid property management will solve most of your problems before you start.

Charles:
So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments on potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding, and didn’t want tenants calling you? Since 2006, I’ve been buying income producing properties in great locations that provide us with consistent passive income while we wait for appreciation in the future and take advantage of tax laws while we’re waiting. And unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out invest with harborside.com. If you like the idea of investing in real estate, if you like the idea of passive income, partner with us at investwithharborside.com. That’s invest with harborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication Superstars, LLC exclusively.

Links Mentioned In The Episode:

  • Episode SS82: How to Hire the Right Property Manager for Your Properties

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