by Theresa Bradley-Banta
“I want to invest in a multifamily property.”
I probably hear this statement about half a dozen times a week.
What I usually don’t hear are statements that demonstrate a good understanding of multifamily investment strategies. There’s simply a desire to invest in real estate without much thought regarding long-term investment plans once a property is acquired.
Solid investment strategies and market knowledge are the keys to your success. Your multifamily investment strategies should be in place before you invest in your first property.
Your strategies affect your:
- Real estate investment portfolio
- Operations policies and procedures
- Ability to attract partners
- Ability to be proactive
- Exit strategies
What are your investment goals? Are you looking for cash flow? Appreciation? Short-term or long-term holding periods? Are you able to carve out time for your real estate investment business?
These are important questions you must answer. As are the following:
What Type of Multifamily Property Will You Buy?
How much time do you have to devote to your real estate investment business?
The following two property types will put vastly different demands on your resources.
- Turnkey: A property that is stable or has already been stabilized with competitive occupancy and rents, a solid tenant profile, and no deferred maintenance.
- Underperforming: A property with deferred maintenance, below market rents, unrealized income, poor management, and above average expenses.
Clearly an underperforming asset will demand much more of your time and resources.
What Will You Do With Your Property Once You Own It?
The following exit strategies can be applied to both performing and underperforming assets.
- Flip to another buyer through a means such as wholesaling or assumable financing
- Add value with renovations and asset repositioning
- Convert to another use such as condos or long-term senior care
- 1031 exchange into larger investment properties
Your tactics will vary for each property type. For example, you might want to add value to an underperforming asset by addressing deferred maintenance, increasing net operating income (NOI) and putting top-notch management in place.
But even a turnkey property has value add opportunities. For example you might increase income with the addition of new ancillary amenities or through the implementation of new operations policies.
What Strategies Will You Implement to Increase NOI?
Raising property income and lowering expenses will increase NOI. In the multifamily investment arena, property value is directly related to NOI.
Chances are pretty good you will have opportunities to increase income and lower expenses at your new property.
Here are some strategies for increasing NOI:
Raise Property Income
- Implement RUBS (Resident Utility Bill-back System)
- Raise rents
- Change tenant profile (reposition resident base)
- Add new ancillary services and amenities
- Increase fees and service charges
- Implement new leasing policies
- Implement proactive maintenance policies
Lower Property Expenses
- Hire top-notch third-party management
- Rewrite operations procedures and policies
- Establish tenant retention strategies
- Conduct vendor and service provider reassessments
- Appeal property taxes
- Shop new property insurance, look for discounts to industry
- Install energy efficient building systems
With the proper education it’s not difficult to outperform your competition.
The very best thing a new investor can do to fine-tune their multifamily investment strategies is to work with a mentor who is already in the business. Talk with successful multifamily real estate investors. Most will be happy to have a conversation about your investment strategies.