multifamily property - Red Pill Kapital, LLC

Investing in the future is the smartest thing you can do now, considering the economy contracted for two consecutive quarters, the typical textbook definition of a recession. Although, the US is still not technically in a recession, as the National Bureau of Economic Research is the only body allowed to make that call (and they haven’t, yet…), the warning signs are there.

What can’t be ignored is that the economy is contracting while productivity is declining, so it’s best to prepare for the harsh economic days ahead. Because of the unpredictable economic behavior, this article will discuss how to invest in your future so you can ride through the hard times.

1. Create an Investment Plan

The first step to building a financially secure future is to create an investment plan. With such a volatile market, you need a guiding star to help you commit to the master plan and avoid panicked decisions. An investment plan lays down a strategy after gauging all the market variables. That way, you can recognize and weigh all the risks when investing, enabling you to fulfill all your obligations still. The plan should help you realize the best investment vehicles.

The key to creating a plan is to be realistic about what you can achieve. Note that creating an entire financial strategy for the future in one sitting isn’t going to work. Instead, break down each piece into smaller steps that are manageable and achievable. Once you’ve figured out the steps, write them down, so they’re easy to refer back to when needed.

2. Diversify your Investments

As is often said, never place all your eggs in one basket. Diversifying is an excellent way to get the most out of your money, even in the most troubling economic slumps. It means spreading the investments across different asset classes so that if one class tanks, another will likely thrive. Markets you can try your hand at include:

a) Invest in REITs

Real estate investment trusts (REITs) are a great way to invest in real estate without owning any property. They’re publicly traded on stock exchanges and often pay out dividends from their rental income. In a risk-off environment such as the current one, REITs are typically the oasis of hope, and it’s easy to see why. REITs offer relative inflation protection and high dividends but bear a low correlation to the stock market and have low transaction fees.

REITs are excellent investment vehicles for the long term, typically outperforming bonds and stocks in some periods. If anything, REIT’s average yield is over 3%, more than double what you would earn from S&P 500 stocks. What’s more, REITs are liquid, so you can get your cash as soon as the market opens.

b) Home Flipping

You don’t have to own an entire rental property to reap the benefits of investing in properties. A neat trick to try is home flipping, which involves buying distressed properties at discounts, renovating them, and selling them for a profit.

c) Sandwich Lease

In this arrangement, you enter a rent-to-own agreement with a landlord, then lease it to a tenant. It’s one of the most cost-effective ways to enter into real estate, as the tenant will allow you to purchase the property after several years.

3. Concentrate on Marketing

Investing in your marketing strategy is one of the best ways to create a sustainable business. Marketing will boost sales and build your reputation, increase your relevance and demand, and cements your place among customers, creating a loyal customer base.

One of the most potent forms of marketing is digital marketing. The main way of doing this is through search engine optimization (SEO) using keywords. You target a range of words potential clients use when searching for real estate properties for Google to drive traffic to your online sites.

Digital marketing could take many forms, such as email marketing, blogging—which 56% of marketers say is effective, and social media. Posting content on social media is exceptionally effective considering 82% of Americans use social platforms.

Whichever form of marketing you settle on, you should try videos. According to Wyzowl’s research, 86% of marketers said videos helped increase traffic and generate leads, while 81% said they directly helped increase sales.

4. Automate your Savings

Automating savings is a great way to ensure you always have money available for whatever comes up. The best part is you won’t even have to think about it as it works in the background.

It’s also a great way to start investing in the future. You can set up automated transfers from checking to savings and then start saving with every dollar. It’s easy, painless, and will save you money in the long run.

To automate your savings, use an app like Acorns or Qapital. These apps allow you to set up automatic savings plans, plan, and invest without making withdrawals at specific times as traditional banks do.

5. Start Investing in Yourself

Another great way to prepare for the future is by investing in yourself. There are many ways to invest in yourself, such as:

Go to class: There are many courses available online or at local community colleges that can help you learn more about real estate and expand your knowledge in readiness for the future. Most of these courses have classes on various aspects of real estate, including how to market yourself, use social media, and manage your finances.
Subscribe to emails from industry leaders: By signing up for newsletters from real estate professionals or companies, you’ll stay up-to-date on changes in the industry and what you can do to adjust.
Listen to niche podcasts: Podcasts are another great way to learn about topics related to your industry—not just real estate. There’s a ton of valuable information on marketing, management skills, and more.

The Bottom Line – Invest in your Future, No One Else has More of an Incentive

Just because the economy is tanking doesn’t mean you must sink with it. Since business is low, now is the best time to invest in the future and realign your business so you can reap big when the market turns hot again.

Some of the best tactics you can employ include concentrating on marketing, investing in your knowledge, diversifying your investment portfolio, and automating your savings. Before you set out, you must create an investment master plan to guide you through turbulent times.

By Gurpreet Singh Padda, MD, MBA

Like any other investment, multifamily properties pose some risks for their investors. It’s not as risky as investing in the stock market, but considering the amounts involved, a multifamily investment can easily eat into your finances if it goes bust.

So, how do you minimize risk to commercial real estate investment? This article highlights the best 10 tactics you can employ to mitigate the risks of purchasing and maintaining a multifamily unit.

1. Assessing the Competitive Set

That involves assessing the risks associated with the submarket or the property’s geographical location. In real estate, a competitive set refers to the group of properties that compete with your property for business.

An investor uses the competition to benchmark a property’s performance before purchasing. Carry out an analysis of properties comparable to what you’re interested in investing in.
Using this information, you can identify factors like occupancy rates to determine whether the property is profitable or not. Alternatively, consult property owners and managers within a competitive set to gain valuable information.

2. In-person Property Tour

Now that things look good on paper, it is time to take a closer look at the property. Plan to view the property in person and ensure your tour includes the units, common areas, and amenities.
For common areas like hallways and the lobby, consider the cleanliness and general condition.

As for the amenities, look at their layout within the property. Is it organized? Consider the advantages or disadvantages, if any, of the design of the amenities within the multifamily property.

As you inspect the units, look at them from a renter’s perspective. If you rent out the units within the property, what is lacking, or what needs improving?
Consider factors like how spacious the units are, the cabinets’ finishing, and whether it has a balcony or outdoor deck. These ‘extra’ touches are what would make a renter choose your property over another one.

3. Know Your Residents

After inspecting the property’s physical aspects, it’s time to scrutinize who lives there. Please pay attention to how they use the property and its amenities. This inspection will give you an overall feel of the general resident profile.

Additionally, an in-depth analysis will provide an income profile for your residents. You can also get detailed information on the residents, such as their employment background.

Later, after purchasing the property, you should conduct criminal background checks on current and future tenants. This will prevent any scuffles or illegal activity on or near the property.

Law enforcement will hold you responsible for renting to a criminal, even unknowingly.

4. In-person Tour of Competitive Properties

The next step is to inspect the properties in your competitive set. Go through the same process of reviewing common areas, amenities, and units. Managers or property owners will grant access to the property. Be honest about why you’re there.

Let them know that you want to tour the premises and any available units. Consider the same attributes you did with the property you wish to purchase, then compare the differences. Look at what other properties have that yours does not. On the other hand, look at what is missing to capitalize on.

5. Conducting Inspections and Determining Capital Costs

Even if you are a seasoned investor who understands the ins and outs of properties, it is still necessary to call in the experts when analyzing a multifamily property. Third-party professionals need to conduct a thorough assessment of the property.

These experts will consider factors that you may not even think about, such as the building’s age, the condition of the roof, drainage issues, and the quality and conditions of mechanical components.

Using the analysis from these specialists, you’ll be able to determine capital costs needed soon or over an extended period. You will also need to factor in repair costs that are a part of capital costs.

6. ‘North, South, East, West Analysis’

Go back to your prospective property and conduct a North, South, East, West multifamily analysis. It is a process that involves placing yourself in a tenant’s shoes. Look at the property from their perspective.

Walk-in from all directions. If possible, drive in from all directions too. Doing this will give you a feel of what it is like to live on the property. As a resident, what do you find most appealing about the property? What don’t you like?

Is the distance from the store convenient? Is it a generally safe neighbourhood? Looking at the property from a resident’s perspective offers you the opportunity to have an objective look at its weaknesses.

7. Building a Budget

This is one of the most important aspects of commercial real estate investment criteria. If you are new to investing, you may place all of your focus on the operating expenses. Instead, you want to develop a budget that factors everything about the building from scratch.

The budget can include factors like the staff. Ensure you look at service contracts to understand what services they provide.

Additionally, create your version of an operating budget based on gathered information, and compare it to the actual running budget the property currently has in place. The budget will help you determine what the net property income is.

8. Opportunities for Revenue Growth

Looking at the net property income, you can determine whether there are opportunities for growth with the same revenue. You can compare rents and determine whether the rate is fair or there’s headroom to raise the rent.

Also, the local market determines the rates you apply and whether there is potential for a new supply of properties in the area.

9. Evaluating Supply Threats

At this point, you should already have a clear picture of your competitors. In addition to looking at existing units, you need to scrutinize any multifamily properties coming up in your submarket. This is because these new units may end up competing with yours.

More multifamily properties will affect the amount of revenue your property brings in. If you’re in a larger market, you won’t feel the impact, but the effect is more prominent in a smaller submarket. This might prove to be a hectic task to monitor so you would need the help of the best commercial real estate investment company to assist you throughout the process and bring the best deals to boost capital gains.

10. Market Stability versus Volatility

Look out for a stabilizing factor for your property. For example, perhaps the property is located near a university. Students need housing, and it is unlikely that a university would relocate out of the blue.

Another stabilizing factor is whether a city is a state capital or not. Such factors help indicate how stable or volatile a market is over the long run.

Final words

Have all of these factors in mind as you consider investing in a multifamily property. Be diligent with each step to ensure your property remains profitable even in the face of recessions. Also, make sure to avail all the tax benefits you are eligible for such as the 1031 Exchange Process. That is the best way to minimize risk while saving more when making a multifamily purchase or a sale.