There are countless ways to invest in multifamily housing, and no matter what your needs or reasons are, you can find an investment strategy that fits them. By taking advantage of multifamily real estate opportunities, you can improve the quality of your investment portfolio, ensure a steady cash flow, and optimize your estate planning. Below, we offer four multifamily property acquisition tips to help you succeed.
Basic Multifamily Property Acquisition Tips for New Investors
Investment advice can be highly technical and too specific to help new investors in many situations. Here are a few broadly applicable points to make the multifamily property investing process more accessible and transparent for a new investor.
1. Know why to invest in multifamily. Multifamily real estate attributes provide attractive incentives for investment:
- The benefits of multifamily investment compared to other property types are favorable.
- Multifamily housing investments can lower the level of risk in a portfolio thanks to their relatively dependable rental income and because the multifamily real estate market does not follow stock markets.
- Multifamily development and acquisition each provide a return on investment (ROI) but with different levels of risk and time horizons: Development is riskier and typically provides higher profits sooner, while acquisition typically provides a smaller, steady income indefinitely.
- A wave of multifamily development is underway that seems to have no end in sight, which should create a large acquisitions market.
2. Know how to reach your goals. Once you decide to invest in multifamily housing, you can get down to the nitty-gritty of developing your business plan, making financial projections, and buying.
Acquiring a multifamily property requires a large amount of specialized knowledge. You must learn how to value multifamily real estate and will need a firm grasp of several economic concepts, including ROI, net operating income, and capitalization rate. But before you can understand those concepts, you should know some basic shortcuts to quickly appraise the properties you’ll consider. Knowledge of apartment communities in general and of the local market specifically is also necessary.
Besides these clear-cut skills, there are soft skills that are indispensable. Strategic thinking is always crucial in investing. The ability to access data, to invest based on that data and reliable projections, and to control your enthusiasm is a must. You should also learn negotiation tactics, as you will deal with partners, financiers, sellers and service providers. If you are not secure in your negotiating abilities or you desire feedback on your business strategy, seek advice from professionals.
3. Form a network of colleagues and partners. Acquiring a property is a team effort. Without brokers, lawyers, accountants, managers, and an army of specialists to support real estate due diligence, it will be a lot harder to operate within the real estate market. Having a network of trusted and capable colleagues and partners to call on when you need them is invaluable. Finding a highly qualified and experienced broker is a good first step to get a toehold in a local market.
A real estate investment management firm can provide expert advice, simplify your investment activities significantly, and provide or arrange for an array of professional services. Moreover, by pooling your financial resources with those of other investors in the firm, you can acquire properties you would otherwise be unable to invest in on your own. By partnering with a team of investment professionals, you can better strategize to make your investments work for your specific needs.
4. Make 1031 exchanges. A 1031 exchange provides an opportunity to exchange real property for other real property of equal or greater value while deferring capital gains taxes and depreciation recapture. Capital gains taxes and depreciation recapture can be deferred until the property is sold. Additionally, if you leave the property to your heirs in your estate, the value of the property is “stepped up” to market value, wiping out the capital gains taxes and depreciation recapture altogether.
A qualified intermediary (QI) is used to make the exchange to avoid cash receipt or constructive receipt by the exchangers. The 1031 exchange is characterized by its large number of complex rules, as well as by the careful application of those rules to meet the needs of investors. For these reasons, it is crucial to find a reliable QI, who is willing and able to answer your questions and handle your specific exchange.
Multifamily property investment is a dynamic undertaking through which you are likely to acquire assets that will enhance your portfolio. Expert guidance is a major benefit to first-time multifamily investors, as well as to seasoned property owners.
At CWS Capital Partners, we are a fully-integrated multifamily real estate investment management firm that offers everything from due diligence and risk management to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country, and we employ a team of experts who can help you hone your investment strategy.
For more articles like this one, check out our investment strategy blog posts.
Please contact us to learn more about investing with CWS Capital Partners, or view our current offerings by completing our self-certification form for accredited or qualified investors.
The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.