When looking to build a property portfolio of multifamily assets, it’s helpful to remember the old adage “don’t put all of your eggs in one basket.” Building a portfolio of multifamily assets that contains properties diversified by class and/or location will help you balance risk against return.
As an investor, you know there are many benefits to investing in multifamily real estate, including passive (rental) income generation with the potential to increase over time, the ability to hedge against inflation, potential asset appreciation, tax shelter provided by non-cash depreciation deductions, and 1031 exchange eligibility to name a few. In order to hedge your risk as you build your portfolio, you’ll need a solid plan that supports your goals.
Strategize to Build a Portfolio of Multifamily Properties
Two of the biggest challenges of building a portfolio of multifamily assets are filling it with great properties and managing those properties. The more time you invest in creating a strategy around both, the better able you’ll be to avoid potential complications. Begin with the following tips:
Examine your investment and financing options. When building your portfolio, your multifamily investment options include acquisition and development. You could save yourself time and money by purchasing an existing multifamily asset, rather than investing in a new development. Obtaining financing for a new development could include a large down payment and even collateral requirements. It could also be very complex and include intricate structuring since new multifamily properties are typically built in stages. Financing an existing asset, on the other hand, could be as easy as utilizing a basic commercial mortgage. Remember, too, that multifamily assets are also typically 1031 exchange eligible, which could save you a significant amount of money when it comes time to sell a multifamily asset that has appreciated.
Learn to identify solid opportunities. Your investment decisions should be well-informed and based on accurate, timely information. Therefore, as you evaluate a new multifamily investment property, you’ll need to analyze past performance and future potential, and do your due diligence.
A trusted real estate investment management firm can help you identify the best opportunities for your portfolio of multifamily assets in very specific markets. With insight into the various types of investments available, an experienced firm will present available options that are aligned with your quality expectations and financial goals. Before you explore firms, be sure to familiarize yourself with the top traits to look for in a real estate investment management company.
Consider how you’ll minimize geographic risk. Multifamily assets are considered lower risk investments and, therefore, are looked on favorably by investors. But no property investment is risk-free. So, building a portfolio of varied multifamily assets will allow you to better minimize financial uncertainty. For example, if you currently invest in a multifamily asset in California in an area prone to wildfires, you might lose income or even the entire property in the event of a disaster. But if you also invest in assets in a safer area or outside the state, the rental income from those other properties would not be interrupted as you repair or rebuild the damaged properties.
Create a plan to hedge market fluctuation. In much the same way building a portfolio of regional multifamily assets will help you minimize geographical risk, it can also hedge market risk. For example, when the real estate market rises in one city in which you’ve invested but falls in another, your rental income will likely remain relatively level.
Understand the challenges of property management. The assets in your portfolio will demand a good deal of attention, which can quickly steer your main focus away from active income generation and toward management responsibilities. To avoid that challenge, consider partnering with a real estate investment management company that can help you with day-to-day operations of each property. An experienced firm can screen and interview tenants, quickly fill vacancies, maintain the property, proactively work to prevent situations that might lead to expensive repairs, and much more. In addition to saving you time and money, a real estate investment management company can help you to continue to build your portfolio through new acquisition strategies.
Building a multifamily property portfolio can be difficult and time consuming, but it can also be one of the most profitable decisions you make as an investor. By creating a sound strategy and partnering with the right advisors, you can set yourself up for success.
If you are looking for a real estate investment management firm that meets all of your expectations, CWS Capital Partners may be a good match for you. Founded in 1969, we are a reputable, fully integrated real estate investment management company that specializes in the acquisition, development, repositioning, and management of luxury apartments.
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.
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