Many people hesitate to invest in multifamily real estate just because it is unfamiliar to them, or if they are not sure if they are the type of person who should invest in it based on their career, net worth, or investing goals. But, the truth is, many different types of people can invest in real estate, regardless of income, career path, net worth, etc. However, some of these factors might influence the way that you invest in multifamily real estate.
Who should invest in multifamily real estate?
Anyone who has disposable income that they are looking to invest can potentially invest in multifamily real estate. However, certain types of real estate investments are reserved for people with high net-worth. For example, if you would like to invest into multifamily properties through a real estate syndication, then you will typically have to invest at least $25,000 - $50,000 to get started.
Similarly, if you would like to buy large multifamily properties yourself such as apartment buildings or condo complexes, then you may need to invest tens or hundreds of thousands of dollars as a minimum investment.
However, if you do not have this kind of money, then there are still ways that you can invest in multifamily real estate. You can do this by investing smaller amounts with crowdfunding real estate platforms such as Fundrise or others, or you can invest in multifamily “REITs.”
REIT stands for real estate investment trust. A real estate investment trust is a company that owns and oftentimes operates income-producing real estate on behalf of investors. These companies are required to share a certain percent of their profits with investors. So, you can get exposure to multifamily property investing through REITs if you do not have the capital to make a larger real estate investment.
What are the risks of investing in multifamily properties?
There are a few key risks that you should be aware of if you invest in multifamily properties. The first Is a real estate crash. If a real estate crash occurs, then the value of your properties will tend to drop significantly. However, these crashes are usually only temporary and property prices tend to recover over time.
Another risk that you should be aware of is crime. Neighborhood crime can drive down property values and increase vacancies for your rental properties. Because of this, you should be careful not to invest in properties that are located in areas with high crime levels or that are likely to have high crime levels in the near future.
You should also be careful if you are thinking about investing in properties that need a substantial amount of renovation. The reason is because if you invest a large amount of money in renovations, you might not be able to fully recover your investment in a short enough time frame if you can’t raise rents high enough following the renovation.
Maintenance issues can be another risk for multifamily properties. If the property that you buy is not in good condition, there can be a wide variety of maintenance issues that can spring up and cut into your profits.
Who Should Not Invest in Multifamily Property
Despite the fact that there are many different ways to invest in multifamily property, there are some people who should not invest in this type of asset. For example, people who are living paycheck to paycheck should not invest in multifamily property. This is because you need to have at least some capital and at least some ability to take risk. People who are living paycheck to paycheck do not really have either of these things.
Other people who should not invest in multifamily property are people who want to experience extremely high returns on a short timeframe. This is because multifamily property tends to only generate average cash-on-cash returns of 7-10 percent per year. So, if you are looking for high-risk, high-return investments, then multifamily real estate is probably not your best bet.
Multifamily real estate is better for people who want to make stable returns over time, earn passive income, and hedge against inflation. If you are thinking about investing in multifamily real estate, then you should save up a certain amount of capital that you can invest and start learning the basics. You can start small by investing in REITs and crowdfunded multifamily real estate.
Then, as you progress, you can start making larger multifamily real estate investments such as a duplex or a triple. Many real estate investors build momentum over time. As they acquire more multifamily property, their investing skill and cash flow continue to grow. This enables them to keep making better and better investments in multifamily units.
If you want to improve your multifamily real estate investing skill, then you can take courses, read multifamily investing books, go to real estate meet ups, read real estate articles, and more. The more multifamily real estate investing knowledge you possess, the easier it will be for you to make high-quality multifamily real estate investments that build your wealth over time.
Multifamily real estate investing is not for everyone, but for many people, it can be one of the best ways to invest. If you have an interest in making money in multifamily real estate, then it could be well worth your while to learn about it and start investing. If you start small with REITs and crowdfunding platforms, then the financial barriers to entry are much smaller. If you have a higher level of capital to invest, then you might consider starting with a duplex or a triplex. But, regardless of how you choose to start, if you do it right, you should be able to make money from rental income and price appreciation.
If you are an accredited investor and if you have at least $50,000 to invest, then don’t forget that you can work with a multifamily syndicator who can do the hard work of finding and managing the investments on your behalf. Many high-net-worth investors find this to be the easiest way to participate in multifamily real estate.