Investing in multifamily real estate can be a great way to build and grow wealth over time. This is because multifamily real estate generates passive income through rental payments and properties also tend to appreciate in value. Both of these things are highly beneficial if you are trying to grow your wealth.
How Do I Start Investing in Multifamily Properties?
Many people would like to start investing in multifamily properties, but are not sure how to get started. The answer is that there are actually multiple ways to start investing in multifamily properties.
The first way is to invest in them directly by yourself. You can do this by buying a multifamily property such as a duplex or a triplex and renting out the property by yourself. For many real estate investors, this is how they get their foot in the door and start their multifamily real estate journeys.
However, if you would rather not be involved in the direct purchasing and managing of multifamily properties, then there are several other options that don’t require you to do this. For example, you can use a crowdfunding platform such as Fundrise.com, or you can do multifamily syndication.
A crowdfunding platform is a platform that takes investments from many different people and invests them into real estate assets, sharing the profits with the investors. Multifamily syndication is similar to crowdfunding in that multiple investors, known as syndicators pool resources to buy real estate assets. However, multifamily syndication typically involves far fewer investors than crowdfunded real estate, and the minimum investment is typically substantially higher.
The multifamily syndication process usually involves investing at least tens of thousands of dollars. Investments are made and managed by the “sponsor” who organizes everything and selects the investments. Many sponsors require minimum investments of $50,000. As with crowdfunded real estate, profits and cash flows are divided amongst the investors according to the size of their investments.
What is the 2% Rule in Real Estate?
The 2% rule in real estate is a rule that states that if the monthly rental value is equal to or no less than 2% of the purchase price of the rental property, then the property will generate a positive cash flow. Many real estate investors use this to help guide their multifamily real estate investing decisions.
To understand how the 2% rule works in real estate. Let’s say you are thinking about buying a property that costs $200,000. In this case, according to the 2% rule, the rent would have to be at least $4,000, since $200,000 x .02 = $4,000.
If the property has a rental value that is 2% of the purchase price or more, then it is considered a 2% property. If the rental value is less than 2% of the purchase price of the property, then it is not considered a 2% property.
Is It a Good Idea to Invest in Multifamily Real Estate
Investing in real estate can be an excellent decision for many people. In fact, it is estimated that 90% of US millionaires are invested in real estate and a large percentage of these millionaires even acquired their net worth through their real estate investing activity.
As with many other asset classes, however, the skill of the investor and the quality of the investments will have a tremendous impact on the overall success that the investor can achieve. Many people choose to do multifamily real estate investing through syndications so that the sponsor can do the hard work of finding and managing the properties. If you have the resources but do not have the time or the skill to find the best real estate investments, then multifamily syndication could be a great option for you.
Multifamily real estate makes for a great investment for many reasons. First, it generates passive income in the form of rent payments on the multifamily property or properties. Second, multifamily property prices in America have traditionally gone up in value over time and this long-term trend is showing no sign of slowing. Third, multifamily properties are an excellent inflation hedge and we are currently in a period of high inflation. Finally, fourth, everyone needs a place to live, so there will constantly be high demand for multifamily real estate.
Types of Multifamily Real Estate
If you are thinking about investing in multifamily real estate, then there are many different options for you to choose from. For example, all of the following are different multifamily property types that you can invest in:
- Multi-story apartment buildings
- High-rise apartments and condominiums
So, you could potentially invest in any of these if you want to get started in real estate investing and start purchasing multifamily properties.
Books to Read on Multifamily Investing
If you are thinking about getting into multifamily investing and buying some multifamily property, then you can improve your skill and knowledge base by reading certain books on the subject. Here is a list of some of the best multifamily investing books..
- Apartment Building Wealth By Dwayne Clark
- Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple by David M. Greene
- Investing in Apartment Buildings: Create a Reliable Stream of Income and Build Long-Term Wealth – Edition 1 by Matthew A. Martinez
- The 7 Secrets to Successful Apartment Leasing: Find Quality Renters, Fill Vacancies, and Maximize Your Rental Income by Eric Cumley
- How to Find, Finance, Fix and Flips Apartments: From Duplexes to 100+ Unit Complexes by Nathan Tabor
Whether you are already a high-net-worth individual looking to invest millions of dollars, or whether you are just getting started on your real estate investing journey, multifamily real estate is an excellent investment option. There are many different ways to get started. You can buy your own duplex, triplex, quadruplex, etc., you can use a crowdfunding platform like Fundrise, or you can invest a large sum of money through multifamily syndication. If you are going to get started with real estate investments, you should prioritize 2% properties that generate healthy cash flow.