Founder Vive fundsA specialty multifamily investment firm focused on developing high quality properties for our investors.
Being a new real estate investor is not for the faint of heart. By taking the time to understand and be willing to learn, one can take the mystery out of real estate investing and take advantage of rewarding opportunities. Many real estate investors start by investing in single-family properties and move on to multi-family as their confidence grows. On the face of it, it seems like a safe way to cross—but is it?
My history with real estate investing begins with my mother. She was an accomplished investor and owned a successful portfolio of single-family homes in the Chicago suburbs. I naturally gravitated to this investment structure because I had a built-in advisor and started my own single-family portfolio. After seeing how much active participation is required in the management of these properties, I decided to join a multifamily syndication. Then I moved from being a passive investor in a large family. Later I decided to take on the challenge of being the lead sponsor on a deal. The returns, combined with the tax benefits that multifamily offers, made a difference in my entire family. We have completely avoided single-family projects and invested our money exclusively in multi-family.
There is a natural tendency to start investing in single family homes. Often there is a favorable situation, and it seems that the investment Direct and more accessible. Many people end up owning their old home after moving, turning it into a rental. But it’s important to note that there are many things to consider. Some of them include:
• Finance: Following the financial crisis, banks have tightened credit requirements 2008. This crisis is caused by many factors, including lax lending standards that have left home buyers with questionable mortgages. Banks have become very selective in their lending practices. Be prepared to take a closer look at your finances. Often times, banks require a much higher down payment for single-family rentals and take a closer look at your overall financial situation.
• Market: When buying a single-family rental home, it’s important to know the market. Is the property in a desirable location when it comes to attracting tenants? For example, the quality and reputation of neighborhood schools, taxes, access to prime job sites, and HOA restrictions are just a few of the many considerations.
• Rent and Tenants: Research the average rental price in the area to make sure the investment opportunity is financially viable. After that, you will have to adjust the rent based on the quality and amenities of the property and the desirability of the location. Quality tenants are needed to protect your investment. Consider how you can maximize rental potential in the short term. If you have a mortgage, you will have to make payments and keep up the maintenance, whether the property is rented out or not.
• cash flow: Failure to pay rent disrupts cash flow, and if an investor doesn’t have emergency cash, timely mortgage payments may be at risk. Sometimes tenants may not pay rent for several months, and this is at the expense of the investor. I have found some states, cities and counties are more landlord friendly while others are more renter friendly. In some states, an eviction can take place in two to four weeks, while in others it can take much longer. Time is money in this forum. It comes out of the investor’s pocket every day when a tenant holds the property without paying. While rent arrears can theoretically be recovered through legal proceedings, I find that most landlords write them off rather than spend the time and expense of legal proceedings. Tenants who don’t pay rent can be asset-poor, making recovery impossible.
• Unexpected expenses: Plumbing leaks, AC and heating problems, gas leaks, garbage disposals, broken appliances, etc. can all have repair issues ranging from a few dollars to thousands. While some minor issues can be resolved when convenient, significant issues need to be addressed immediately. For example, I recently had an incident with a broken pipe in the property, which required us to find an alternative place for tenants to stay in order to quickly get experts to resolve the issue. Dealing with such issues in a timely manner can be costly.
Single-family investing has its own advantages, especially for new investors. The cost of moving into a single family can be much lower in many areas. This is why many investors choose to start here to get their feet wet in the industry.
On the other hand, managing a single family rental property is not a “rent and forget” proposition. It requires constant time and effort, but it can be profitable. The amount of effort required to manage multiple assets is not linear. Prepare for the expected and the unexpected. Both can hurt and hurt financially.
When it comes to investing in multifamily properties, I find that the main difference in purchasing is the level of inspection and the down payment that finance companies require. My next article will focus on investing in the multifamily market. Although it seems difficult, it can be done and if done correctly, it can be profitable.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice regarding your specific situation.