Updated: Jan 9
Whether it comes after owning several single-family homes or it happens when someone is first starting out investing in real estate, owning a multifamily property is a dream of many investors. After all, it’s the way many people have built wealth over the years, and it continues today. While it’s more challenging than purchasing single-family homes as investments, multifamily properties can help you generate more income and build your net worth much faster.
The Downsides of Owning Single Family Homes
For investors who are making the leap from single-family homes to multifamily properties, they already understand the downside of being a single-family property landlord. When a tenant moves out, you’re cash flow goes to zero. So does your income. In a multifamily property, one tenant has an impact on operating income, but not to the extent a single-family tenant does, since the loss of one vacant unit is spread over multiple doors.
In addition, as the landlord of single-family homes, you’re the one tenants call when the toilets backup, the HVAC stops working and every other electrical, plumbing and structural problems occur. That takes an inordinate amount of time, and unless it’s your full-time job, you simply can’t juggle those demands along with another job.
Challenges of First Time Multifamily Buyers
Buying your first multifamily property can be exciting, however, there are some challenges that you’ll need to address. The first challenge is a lack of experience. It often takes years to acquire the knowledge and expertise needed to find, assess and purchase the property. Many new multifamily investors simply don’t have that experience, and are surprised to find how much their experience in buying and owning single family homes have very little to do with multifamily. Another major challenge is not having enough cash to buy multifamily.
Money is another major obstacle to owning your first. multifamily. Without a successful track record in buying and selling properties, many sellers and lenders shy away from first-time buyers.
Investors who are looking to passively own real estate look for a syndicator with both experience and a successful track record acquiring properties. Without experience, it will be very hard to raise capital. There are some things you can do while you’re gaining the experience you need, but it’s critical to have it.
Another key challenge is finding the properties. It takes time to build relationships with brokers and lenders who have an inside track to key property listings that may be coming up or aren’t yet “officially” listed. Working on networking and building those relationships with brokers and lenders is key to gaining access to property listings at the earliest possible time.
Use What You’ve Got: Your Market Knowledge
If you have invested in single-family homes, you have a leg up on competitors who haven’t taken that step. The reason is simple: you know the area. You have knowledge of tenants, competition, rental comparatives, property values and other market factors. You’ve also built relationships with contractors and service personnel to resolve problems with the single-family homes, which can be beneficial when you acquire a multifamily property.
Partnering with Experienced Investors: Your Key to Success