Investment decisions require a great deal of thought and preparation, and investing in a multifamily property is no different. But if you're new to real estate investing, it can be difficult to gauge whether or not you're ready to make the leap.
However, there a few key characteristics that successful multifamily investors have in common. Check yourself against the following indicators to see if you’re ready to investment in a multifamily property.
You have a goal and plan in place
Multifamily investing isn't something that should ever be taken lightly, because you're putting a lot on the line when you buy real estate. That being said, one way you can prepare is to research the different types of properties, the market, and the responsibilities of a landlord to create a plan that will provide guidance when making decisions.
For instance, a multifamily property could include anything from a duplex to a large apartment building, and knowing which type of property you want to invest in is a crucial first step.
Similarly, be sure you are ready and willing to take on renovations or repairs, because that will also limit or expand the types of properties you inspect. As long as you can answer questions like this and have a plan in place, then you're on your way to being ready to invest.
You’ve educated yourself about basic commercial real estate investing concepts
The world of real estate is rife with terminology and ideas that are specific to the industry, and it’s important to have a solid understanding of some key concepts, such as:
- Residential (fewer than five units) versus commercial (five or more units) dwellings
- Vacancy rates and what's typical in your market
- Operating expenses
- Debt service ratio and the commercial loan size you can afford
- Income potential and how to calculate it
You’ve learned how to analyze the market
Although it can be important to rely on a real estate agent when investing in a property, you should still have a basic knowledge of the real estate market in your area before delving into a purchase. A few important things to know include some basic history of and current property values in the area, trends that affect the market, vacancy rates for multifamily units, rental prices, employment rates, and how your market compares to hot or trendy markets.
You have some transferable experience that applies to real estate
Jumping into a real estate purchase doesn’t automatically make you a successful real estate investor. But even if you're a beginner, there are still some transferable skills and experience that can prepare you for the task. For instance, having a good track record with finances or business investments can provide a strong background for future real estate investments.
However, real estate is about more than just that, and having good people skills, for instance, will help you when working with agents, sellers and buyers, lenders, tenants, and other people who are involved in the business.
There's really no way to know if you're ready to jump into multifamily property investing until you do it, but these points should provide some guidance to help you decide. Contact us today to talk about different commercial real estate financing options or to get the application started for your commercial loan.