How to invest in multifamily property

Whether you’re a wholesaler, a new investor, or a season SFR flipper…

Multifamily is a typical “next stepping stone” in your investing career.

So as a print shop how has specific products for targeting multifamily… as well as clients who buy multifamily, we’re going to dive into an article that guides through the world of multifamily investing.

But before we do…

Let’s take a look at some of our clients successes and the mailers they use to buy multifamily investments:

How to find Multifamily properties with mail

As a direct mail shop we can’t NOT write an article on how our real estate investor clients are finding multifamily properties using our specific handwritten mail.

Here’s a list of mailers and clients that use our mail to find off-market multi-family deal:

Globetrotter turned investor uses this letter to find her MFU properties:

Youtube star used only 450 seasonal letters to find this Million $$ MF property:

Use this specific handwritten postcard to buy small apartments:

Hotel investor uses this greeting letter to find his deals:

And lastly… our specific COMMERICAL ACQUITION letter is helping investors grow their portfolios:

 

Alright, so there’s our little “commercial” to using mail to buy apartments…

Now let’s dive into our guide:

Complete guide to Multifamily investing 

Why Invest in Multi-Family Units (MFUs)?

There’s a palpable thrill in owning a piece of land, a building, a tangible asset. But when that asset can house multiple families, all paying you rent, well, the game just got more interesting.

Multi-family units, or MFUs, offer an intriguing blend of both passive income and economies of scale that single-family units can only dream of.

Imagine this: One roof, multiple rent checks.

One maintenance call, and several units are covered. The efficiencies just stack up, much like those apartment floors.

Then there’s the resilience factor. In a single-family rental scenario, vacancy means zero income. Ouch. But with MFUs, even if a couple of units are vacant, others are still generating income. It’s like having a backup choir ready to sing even if the lead vocalist calls in sick. This diversified tenant base can be your hedge against economic downturns, ensuring a smoother financial journey.

And let’s face it, in the unpredictable tides of real estate, who doesn’t want a steadier ship?

Understanding the Multi-Family Investment Niches

There are all sorts of niches. Here’s a basic start to understanding some of them.
A. Duplex, Triplex, and Quadplexes:

These are the baby steps into multi-family investing. A duplex has two units, a triplex three, and a quadplex, you guessed it, four. They’re a great starting point for those testing the waters.

B. Small Apartment Buildings:

Ranging from 5 to 50 units, these buildings are for the more adventurous. They demand more management but offer better diversification – a single vacancy doesn’t hurt as much.

C. Large Apartment Complexes:

50+ units and often accompanied by a chorus of tenant stories. High rewards, but equally high risks and demands.

D. Mixed-Use Buildings:

These are the chameleons of real estate – part residential, part commercial. Think apartments above a cafe or retail space. Great for varied income streams.

Terms to Know in Multi-Family Investing

Dipping your toes into the multi-family investing pool? Well, before you dive in, you’ll want to familiarize yourself with the lingo. It’s a little like learning a new language – but instead of asking where the bathroom is, you’re asking about cap rates. Here are some essential terms that’ll have you speaking fluent “Investor” in no time:

Cap Rate (Capitalization Rate):
A formula used to determine the potential return on an investment. It’s calculated by dividing the Net Operating Income (NOI) by the property’s current market value.

Cash Flow:
The monthly or annual net income you pocket after all expenses, including mortgage, taxes, and maintenance, are deducted from rental income.

Gross Potential Income (GPI):
The maximum amount of income a property would produce if it were fully occupied and all tenants paid their rent in full.

Vacancy Rate:
The percentage of all available units in a rental property that are vacant or unoccupied at a given time.

Net Operating Income (NOI):
The total income a property produces after all operating expenses (excluding mortgage costs) are deducted.

Operating Expenses:
All costs associated with running and maintaining a property, excluding financing costs. Think: property management fees, taxes, insurance, and repair costs.

Loan-to-Value (LTV) Ratio:
A metric lenders use, representing the amount of the mortgage lien as a percentage of the total appraised value of the property.

Debt Service Coverage Ratio (DSCR):
A measure of the cash flow available to pay current debt obligations. A DSCR above 1 indicates positive cash flow.

Breakeven Occupancy Rate:
The occupancy rate that covers all operating expenses and debt service. Essentially, it tells you how full the property needs to be to break even.

Value-Add Property:
A property that offers the opportunity for an investor to increase its value through renovation, improving management, or increasing rents.

How to Evaluate a Multi-Family Unit (MFU) Deal

The intoxicating world of multi-family investing is as much about numbers as it is about bricks and mortar. Each property type, whether large or small, demands its unique evaluation approach. It’s a little like tasting wine: the fundamentals remain, but the technique varies based on the variety.

For Small MFUs (Below 5 Units):
Small multi-family units are the cozy bistros of the real estate world: intimate and often nestled in residential neighborhoods. When assessing these, the method to rely on is comparable sales, often referred to as “comps.” This means you’ll be looking at what similar properties in the area have sold for recently. You’ll want to compare apples to apples – ensuring that the units have similar features, amenities, sizes, and are in comparable conditions. These comps will provide you a baseline price and help determine if the asking price for the MFU in question is in the right ballpark.

For Large MFUs (5+ Units):
As we shift to the larger complexes, the evaluation becomes a tad more sophisticated, reminiscent of upscale restaurants with an extensive menu.

Here, it’s less about the surrounding sales and more about the property’s income potential.

The Capitalization Rate (Cap Rate) is your best friend.

By dividing the Net Operating Income (NOI) by the current market value (or sales price) of the property, the Cap Rate gives you an idea of the potential return on the investment.

A higher cap rate often indicates a higher potential return on investment, but also possibly greater risk. Pair this with an analysis of the NOI – which deducts all operating expenses from the total income – and you’ll have a clearer picture of the property’s profitability.

In the dance of evaluating multi-family units, knowing your steps is crucial.

Whether you’re swaying to the rhythm of comps or the beats of Cap Rate, ensure you’re tuned in to the song the numbers are playing. Because in this dance, precision is everything.

How to Find a Multi-Family Unit (MFU) Deal

Ah, the hunt! It’s where the pulse quickens, where the thrill of real estate investing really kicks in. Finding that perfect multi-family property deal is a blend of strategy, networking, and sometimes, a bit of serendipity. Whether you’re searching in the bustling avenues of a city or the quiet lanes of a suburb, the key is to know where to look and whom to ask.

Here’s your treasure map to discovering MFU deals:

Commercial Brokers:
Often, the big players in the multi-family space work closely with specialized brokers. These brokers are privy to properties that might not be listed publicly. Building a good relationship with them ensures you’re one of the first phone calls they make when a gem comes onto their desk.

Off-Market Deals:
Sometimes the best deals are the ones that aren’t even “deals” yet. Approaching owners directly, even if their property isn’t listed for sale, can unearth golden opportunities. This could be through direct mail campaigns, local real estate meetups, or even a friendly chat with residents in the area.

Real Estate Networking Events:
Mingling with fellow investors, brokers, and other real estate professionals can lead to whispers of potential sales, upcoming listings, or owners contemplating selling.

Online Platforms:
Websites dedicated to real estate listings, especially those catering to commercial properties, can be treasure troves. Think LoopNet, CoStar, or even localized sites specific to your region.

Local Real Estate Investment Groups:
These groups can be hotbeds for off-market deals, as members share leads, resources, and potential investment opportunities.

Wholesalers:
Real estate wholesalers often have access to off-market properties and can be a valuable resource. Just ensure you understand their fee structure and the deal’s specifics.

Remember, while the world of multi-family property hunting can feel vast and overwhelming, patience and persistence are your allies. Keep your ears to the ground, nurture relationships, and always have that metaphorical magnifying glass handy. Because when that deal comes along, you’ll want to be ready to pounce!

Finding Deals Off-Market: The Power of Direct-to-Seller

In the beginning of this article, we hinted at our secret sauce: direct mail campaigns to acquire commercial deals straight from the seller.

But why go direct-to-seller, you ask? Well, the benefits are manifold. Firstly, you bypass competition since these properties aren’t openly listed. Secondly, without brokers in the mix, you may have a smoother and more transparent negotiation process. And finally, sellers tend to appreciate the straightforwardness, potentially making them more amenable to a deal.

Now, while direct mail is our darling, there are several avenues to explore in the direct-to-seller realm.

Here’s a breakdown of the most effective ways to get in touch directly with sellers:

Direct Mail (Our Favorite):
This involves sending targeted letters or postcards to property owners, expressing your interest in purchasing their property. The key here is precision: having a well-researched list, crafting a compelling message, and maintaining persistence. It’s not about spamming every owner, but reaching out with genuine intent and personalization.

Driving for Dollars:
Think of this as a treasure hunt on wheels. Drive around neighborhoods, keeping an eye out for multi-family units that pique your interest. Jot them down, research the owners, and reach out. While this method is time-consuming, it’s a great way to stumble upon gems others might overlook.

Cold Call:
The age-old method of picking up the phone and dialing. With a well-researched list and a prepared script, cold calling can yield significant results. Be prepared for rejection, but also remember, persistence often pays.

Network:
Ever heard of pocket listings? These are properties that agents might know are up for sale but aren’t officially listed yet. Building relationships with local real estate agents can get you insider access to these potential deals.

Radio:
While more of a financial investment, radio ads targeting potential sellers can cast a wide net. Make sure your message is crisp, and your call to action is compelling.

TV:
Similar to radio, but with visuals! TV spots, especially in local channels during relevant segments (think local news or property shows), can make you a familiar face for potential sellers.

Conclusion: Charting Your Course in the World of Multi-Family Units

Investing in multi-family properties can feel like embarking on a grand adventure. From understanding the allure of multi-family investments and getting acquainted with industry jargon to the exhilarating hunt for the perfect deal, every step is an essential chapter in your real estate journey.

We’ve navigated through the intricacies of evaluating deals, understanding the nuances between large and small units, and, most importantly, the art of discovering these properties. Whether you’re casting a wide net with commercial brokers or taking the more intimate route of direct-to-seller, the key is persistence, research, and building genuine relationships.

Direct-to-seller methods, our highlighted treasure trove, offer a world of opportunities. By reaching out directly, not only do you uncover off-market gems, but you also build bridges with sellers, making negotiations smoother and more transparent.

In this vast landscape of real estate, remember: the journey is as enriching as the destination. As you embark on your multi-family investment voyage, let curiosity be your compass and knowledge your North Star. Dive deep, explore, and who knows, the next big deal might just be around the corner, waiting for a savvy investor like you.

Here’s to prosperous ventures and a future filled with multi-family milestones! Happy investing!

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