If you want to optimize your success as a multifamily real estate investor, then you need to have an effective strategy for finding and closing great real estate deals. After all, if you invest in the wrong properties, then you will experience a world of problems and low returns. But, if you invest in the right properties, then you can get access to high, stable returns, and solid price appreciation year after year.
In this article, we will break down key information that you need to know in order to create an effective real estate strategy.
What is the 1% Rule for Multifamily Real Estate Investing?
The 1% rule is a rule that many multifamily real estate investors use to evaluate a property’s potential cashflow. The 1% rule is a rule that states that if a property’s monthly rental value is equal to 1% of the property’s purchase price, then it will generate a positive cash flow, and it has good potential as an investment.
Similarly, the 1% rule also implies that if a property’s monthly rental value to less than 1% of its purchase price, then the cash flows will not be high enough in order for the property to be a good candidate for real estate investment.
The 1% rule is not set in stone. Many real estate investors just use it as a starting point when they are evaluating a property to see if it will be a good investment. You can use it as a jumping-off point too! If the property you are looking at passes the 1% rule, then you should continue evaluating it. If it doesn’t, then it might be a better idea to look for other properties.
How Do I Find Multifamily Investors?
If you are looking for other people to invest with, there are a number of ways to find multifamily investors. For example, you can find them through a multifamily syndication. A multifamily syndication is a group of investors who are all looking to work together in order to buy a property. Multifamily syndications are usually run by a sponsor who organizes the investments and pools the resources of all of the investors. So, you can work with a multifamily syndication in order to find other real estate investors, this is one option.
Another way to find multifamily investors is to speak with real estate agents. Because real estate agents are the ones who show properties to investors, they tend to know a lot of investors. So, you can get in touch with a few local real estate agents and ask them if they know any multifamily property investors they can put you in touch with.
A third way to find other multifamily real estate investors is to go to real estate meetups. Many cities and towns have real estate meetups where you can network with other real estate investors and discuss deals, strategies, insights, and more.
How Do I Find My First Multifamily Property?
If you want to invest a large amount of money into real estate, such as millions of dollars, and if you don’t want to manage the properties yourself, then you should consider working with a multifamily syndication. If you go this route, make sure that you only work with sponsors that have a great track record of success and that have an excellent reputation
If you want to buy and manage the properties yourself, then you can take a different approach. The first thing you need to know how to do is to find multifamily property listings. One of the easiest ways to do this is to use real estate listing sites like Zillow.com or Trulia.com scan for properties. You can filter your searches by multifamily properties on these sites which makes them extremely useful. You can also work with real estate agents to help you find good properties for your budget.
What Not to Do When Searching for a Multifamily Property
Here is a list of things you should avoid doing when you are trying to find a multifamily property to invest in:
- Automatically invest in the first property you tour that fits in your budget just to “save time”
- Ignore the housing market and demographics
- Hope that appreciation will make up for poor cash flow
- Underestimate rehab costs
Strategies to Implement When Searching for Multifamily Deal
For starters, you should strongly consider using the 1% rule to only consider rental properties with adequate cashflows. Second, you should make sure that you are only looking at properties and multifamily units that fall within your budget. Looking for properties you can’t afford will only waste your time because you will most likely not be approved for a mortgage for them.
Next, you should strongly consider working with a real estate agent when seeking multifamily housing to invest in. Not only are real estate agents incredible sources of information about neighborhoods and properties, but they also are the first to know about deals, which can give you a key advantage.
You should also join local landlord groups or associations in your area. Oftentimes, landlords in these groups are looking to sell and give other group members the first chance to bid on them.
Finally, you should strive to only invest in properties with positive cash flow. Positive cash flow means that the rental income is greater than the expenses associated with the property such as the mortgage, interest, taxes, and insurance. Even though the 1% rule is helpful for finding positive cash-flowing rental properties, you should still actually do the math to make sure the property and rental units you are interested in will have a positive cash flow.
It is critical to make sure that you buy a good property when you are getting started in multifamily real estate investing. Using the 1% rule, working with realtors, making sure that the property has a positive cash flow, and paying careful attention to the local real estate market and demographics are all things that can help to increase your chances of success.