When starting out in multifamily investing it’s wise to try and learn from the experience of other seasoned investors.
Owning rental properties can be a smart way to diversify your portfolio and create a steady income, however, it’s not as simple or straightforward as most articles online make it seem to be.
With more people joining the world of passive investing, building a knowledge base is a fundamental step for every type of investor who wants to be successful in their endeavors.
Our goal is to help you as much as we can, that why we’ve compiled 7 things most seasoned investors wished they knew when starting in multi-family investing
1. Multifamily Investing Can Be an Unfair Game
If you’re starting, the first thing you’ll probably notice is that there are so many people who have the money, connections, relationships, and track record in multi-family that it’s difficult to imagine what can you possibly offer.
It is hard, especially if you’re by yourself. To get ahead the best you can do is find the partners with the money, the track record, or both.
This is useful too because when trying to raise capital, lenders will want to deal with someone on your team that has been successful in a similar kind of deal. Joining a multi-family group can help you to level up the playing field.
2. You Can Really Learn a Lot From Passive Investing
As a passive investor, you’re in the best place to ask a lot of questions of the sponsor. You can learn about market research, underwriting, appraisals, inspections, property financials, and so on.
Don’t be afraid to ask for one on one education. By explaining to your general partners that you really want to understand how a deal works, they will spend time with you and explain what you need. It’s a win scenario for you because if you’re better prepared, you’ll have the confidence to keep at it and grow your portfolio even more.
Another thing to your advantage is that you also learn how you should communicate with an investor in the future when it is your deal!
Assume an active role as a student. Go to conferences and get to know a lot of sponsors. Ask them about a deal that you are considering. Master the lingo until and gain a level of confidence that will allow you to keep moving forward.
3. Success in Multifamily Investing Means Having Great Partners.
You have to understand that multifamily is a lot of work; it’s not realistic to expect to get rich very fast and spend the rest of your days relaxing on the beach.
There are so many elements involved in any deal, you cannot do it all nor would you want to. It’s not the best and most profitable use of your time, since the idea as a passive investor is to stop trading your time for money.
So you really need to work with good partners.
Since in the current climate it’s very difficult to find good partners, it is very important to start early and determine who you want to get ‘married to’ so to speak.
Have in mind that the length of any given deal could be as long as 5-7 years until you exit so make sure you want to be working with those people.
Make an effort to understand clearly different components of the deal, from the relationships with brokers and sellers to actually analyzing the deal.
Also, you should attend as many multifamily events as possible.
Join a group, feel the camaraderie, and get to know as many people as possible. This will increase the chances of meeting great future partners.
Conduct background checks on the general partners that you work with, the problem is that when you are new and you are not bringing too much to the table you can’t make too many demands.
But you have to start somewhere!
4. Leverage the Advantages of Joining a Multifamily Investing Group
It will make it easier for you to find partners if you join a group. Give people a chance to get to know you.
The important thing is to find a way to network. It is a way to gain the trust of your potential team members.
Having that team member with 10 years of experience that you can ask any questions to is invaluable.
5. Understand The Underwriting
You have to get yourself to a point where you understand the key drivers to a good deal, since you will have to answer those questions to your investors anyway.
In the current market, you have to know how to creatively make an average deal into a good one, and you cannot do that unless you understand the nuances.
Get used to analyze deals. With each deal look for 5 things that make it really good and 1-3 things that could be improved.
This will also help you when selling the deal to investors. They want to know how this deal is better than others.
6. Don’t Underestimate The Importance of Money in Multifamily Investing
You need money to educate yourself more efficiently and to invest in a property.
You may need extra money to cover expenses in case a deal goes south.
That’s why it’s crucial to find partners that either have the money or have the means to access it, and the best you can do is bringing something to the table to appeal to this kind of partner, ideally some areas of expertise
Always remember that a great deal goes into investor relations before, during, and after the deal.
Regular updates, communication, and acting on behalf of your investors are vital. Capital raisers need to make sure their investors’ interests are protected.
This will build trust and ensure they work with you again.
7. Master the Lingo (And Legal Documents)
You can take educational courses by licensed attorneys to help you understand how to read a legal document. Just make sure you get those documents with ample time for review.
You need to learn key terms such as preferred returns and priority of payouts, voting rights, allocation of equity, and depreciation, just to name a few.
We understand how important this last point on our list is, so much so that we send a special PDF to our newsletter subscribers with 86+ terms that often come up when discussing a deal with other investors.
If you want to start your journey into multi-family investing, remember to always keep learning. We designed our newsletter to help people interested in passive investing get a solid start with valuable information, learning materials, and articles like this one!