Multifamily real estate properties weather inflation and provide passive cash flow. These benefits often get overshadowed by the high barrier to entry. High down payments and stiff competition for few properties can scare away beginners.
Multifamily investment companies level the playing field and can give you exposure to multifamily properties. “Multifamily Investment Companies” who control the entire process of syndication and property improvements and potential income increases are called “Real Estate Sponsors.” Instead of making a massive down payment, you’ll team up with other investors and receive dividends on your investment. Some multifamily investment companies are better than others. Consider these factors before contributing to a multifamily investment company’s property.
What Are Multifamily Investments?
Multifamily investment properties have multiple units that can accommodate tenants. Duplexes and apartment buildings both qualify as multifamily investments. Some multifamily assets can accommodate hundreds of tenants.
Rising house prices have made renting more attractive. This heightened demand can lead to hiked rent prices in the future, helping multifamily property owners. Multifamily investments have significant cash flow potential, but they require substantial down payments.
What Are Multifamily Investment Companies?
Multifamily investment companies specialize in finding, renovating, and maintaining multifamily properties. Management optimizes their investments for high returns, but money is limited. These companies combine with investors to make bids on attractive multifamily investments.
How Do Multifamily Investment Companies Work?
Multifamily investment companies find promising properties. Then, they team up with investors to buy these properties. What happens next?
Multifamily investment companies take care of the property. These companies get on the phone with tenants, address issues, and collect rent. These companies distribute a portion of rental income to their investors as a dividend.
Things To Consider When Looking For Multifamily Investment Companies
Investors can select from several multifamily investment companies. Each company offers exposure to multifamily properties at a fraction of the cost. However, getting stuck with a bad company can result in a net loss and frustration. Consider these factors when assessing multifamily investment companies.
Company’s Mission And Vision
Any real estate investment requires a long-term focus. You can’t quickly enter and exit properties like you can with stocks. When you invest with a company, you don’t only invest in multifamily real estate. You also invest in the company. When you invest in a company, you also invest in its mission and vision.
Some companies provide mission statements and their vision on a page. If multifamily investing companies don’t make it that obvious, read each company’s “About” pages. Most companies explain how the founder started the company, highlight values, and explain who they serve. Check if the company explains transparency. Some multifamily investment companies provide detailed pro forma statements to prospective investors and monthly updates post-investment.
Experience
Real estate investors gain skills and connections through experience. A multifamily investment company’s management team will decide how to use your money. You don’t want to hand your hard-earned money to someone who’s just getting started.
Look for multifamily investment companies with over a decade of experience with multifamily investing. Multifamily deals are more complex than single-family homes, especially 100+ unit apartment buildings. Real estate professionals with limited multifamily expertise aren’t the best partners. It doesn’t matter if they are experts in other areas of real estate if they don’t know multifamily investing. Look at a company’s experience and the accumulated experience of each person in management.
Knowledge
Multifamily investment companies often invest in multifamily properties across various states and countries. These companies keep up with several local markets while knowing the basics. Experience gives you part of the picture, but reviewing presentations and asking questions will reveal a company’s knowledge.
Presentations help you see what companies prioritize when looking at investing opportunities. You get to learn how management thinks and how much research they conduct before making an offer.
Relationships and Partnerships
Real estate is a people-oriented business. Multifamily investment companies rely on handiwork specialists and property managers to maintain their investments. These relationships can ensure smooth management or a nightmare.
The best way to gauge existing relationships and partnerships is to review the company’s current properties. Ask them about their current holdings and if they have any in your area.
You can visit one of their properties to get a feel for how well it is maintained. Investors can also look at pictures of apartment units and search for online reviews. These indicators can help investors determine the quality of current relationships and partnerships.
People and Communication Skills
Problems can emerge for any real estate property, and management must stay on top of them. People and communication skills help teams minor issues before they become significant. Consider how a multifamily investment company interacts with you before investing with them.
A multifamily investment company is often at its best behavior when talking with potential customers. After the prospect contributes to a property, they’re in the investment for the long term. Some companies make you feel welcomed and quickly respond to your emails when you’re a prospect and after you’ve become an investor.
However, some companies may exhibit weak communication during the prospecting phase. If they won’t communicate with you frequently during this decisive moment, what makes you think they communicate effectively with current stakeholders and tenants? Pay attention to your experience with the company as you ask questions and talk with representatives.
Investment Approach
Every multifamily investment company uses an investment approach to distinguish great deals from bad ones. Even with their massive portfolios and many investors, they still have limited funds. Review the company’s website to see what they say about their investment approach. Some multifamily investment companies buy run-down properties, renovate them, and then get tenants. Other companies pay top dollar for ideal properties in pristine condition.
Figure out what you prefer as an investor, and then find a multifamily investment company that aligns with your approach. When assessing choices, remember that you won’t do the work. If you like the concept of fixer-uppers but don’t want the workload, you can opt for companies with a fixer-upper approach. These companies handle the responsibilities and provide you with dividends.
Company Impact
Investors have become more alert about ESG investing. This investing mentality still aims for profits while avoiding a profit at all costs model. ESG investing accounts for the following impacts:
- Environmental: Is the multifamily property hurting or helping the environment? Some investors want to see green solutions that help the environment and provide returns.
- Social: Does the multifamily property enhance the community or make it less desirable for residents?
- Governance: Is management trustworthy, and is the company transparent with stakeholders?
Review previous investments to see how these companies have impacted communities and investors. Some people will never partner up with a company in violation of ESG protocols, no matter how good the opportunity looks.
How To Get Started Investing In A Multifamily Investment Company
After you’ve done your research and settled on a few companies, start reaching out. Companies will share current properties and their goals. Some companies will take it a step further by providing pro forma statements and other documents to help you decide.
