Commercial Multifamily Investments- Investing in Apartment Buildings
If you’re reading this, there’s a good chance that you are considering investing in apartment buildings. Many people have high hopes for their investments, but Investing in Multifamily isn’t for everyone. You have to know what you’re getting into and how to handle the risk. That is what we do at Mi-Ella; we aim to give you all the resources you need to become a successful housing investor. Together, we can decide if the world housing estate is suitable for you and your investment style.
This article is full of great tips that will help you if you have been pondering whether or not multifamily investing is right for you.
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What is Multifamily Investing?
Multifamily investing is basically what it sounds like; investing in a multifamily building (or several housing buildings) to rent out the spaces inside.
Investors have various options for housing investments — from purchasing individual units within large apartment complexes to purchasing small apartment complexes to investing in apartment buildings to purchasing land for future development to build an apartment complex.
The specific type of multifamily investing will determine your ongoing responsibilities as a landlord and how much time you need to invest in managing the property. For example, if you own one unit within a large apartment complex, your responsibilities might be limited to collecting rent and making minor repairs.
Suppose you own and manage an entire apartment complex or building, on the other hand. In that case, you may be responsible for all aspects of property management and maintenance, including landscaping and snow removal.
How To Become An Accredited Investor For Investing in Apartment Buildings
Accredited investors are individuals and entities that meet certain wealth and asset requirements defined by the Securities & Exchange Commission (SEC). Accredited investor status allows an individual or entity to access investment opportunities in the private markets, including hedge funds, private equity, venture capital, and real estate.
We’re asked whether you can become an accredited investor. The short answer is yes. There are no special tests or certifications required to become an accredited investor. However, the Securities and Exchange Commission (SEC) does require that investors meet certain income or net worth requirements.
Below are ways of becoming an accredited investor;
1. Find Your Net Worth
To determine whether you meet the income requirement, simply add your gross income from the two most recent years (or tax returns).
The net worth requirement is a bit more complicated, as it requires adding up your assets and subtracting your liabilities.
Find your net worth by adding together the fair market value of all of your assets: homes, cars, boats, bank accounts, investments, etc., and subtracting any debts you may owe (e.g., mortgage balances).
If that total exceeds $1 million (excluding the value of your primary residence), then you qualify as an accredited investor based on your net worth.
2. Find Your Income
To be an accredited investor, you need to find your annual income. The first step is to define what your income is. In this context, income means “earned income.” Earned income includes, but isn’t limited to:
- Wages
- Salary
- Commissions
- Bonuses
Dividends or interest received, or net rental income (i.e., rental income fewer expenses such as mortgage interest and property taxes).
3. Calculate your net worth
To calculate your net worth, simply add up the value of all of your assets and subtract any outstanding debts you may have. As mentioned above, if this number is $1 million or more (excluding your home’s value), you meet the net worth requirement to be an accredited investor.
4. Use a third-party verification service
Several third-party services will verify your income and net worth for a fee. If you’re not sure whether you meet the requirements or just want to be extra sure, using one of these services is a good idea.
When Choosing a third-party verification service, it is essential to ensure that the company is reputable. Be sure to ask for references and do some research online before selecting a verification service.
5 Step Process to Investing in Apartment Buildings and Multifamily Properties
Here are the five steps you need to take to invest in apartment buildings and multifamily properties:
1. Amount to Pledge
The first step is determining how much money you’re willing to invest in the property. This is called your “pledge amount.” Keep in mind that, as a general rule, the more money you pledge, the better the terms and returns you can expect on your investment.
2. Determine Your Investment Goals
Before you invest in any type of property, it’s crucial to determine your venture goals. For example, do you want to:
- Invest for cash flow?
- Invest for capital gains?
- Invest for a combination of cash flow and capital gains?
3. Select Investment
When you’ve found a property you’re interested in, it’s time to select an investment. This is where you’ll commit your money to the deal. Remember that, as with any venture, there is always some risk involved. So make sure you do your due diligence before selecting an investment.
4. Application
After selecting a project, you’ll need to complete an application. This is where you’ll provide all of the information needed to process your venture. Be sure to have all of your supporting documents ready, such as bank statements and project statements.
5. Asset Verification
The final step in the process is to have your assets verified. This is a process where the property’s owners verify that you have the funds available to invest in the property.
The property’s owners will also conduct a background check to ensure you’re a good fit for the venture during verification.
After your assets have been verified, the closing process will begin. This is where you’ll sign all of the necessary paperwork, and funds will be transferred from your account to the property’s owner.
Why is Multifamily the Right Choice When Investing
Investing in apartment buildings is a great way to achieve positive cash flow and long-term equity growth. In addition, there are a few other key benefits that come with investing in multiunit properties:
1. Diversification
When you invest in a multiunit property, you’re not just investing in one asset. Instead, you’re investing in a pool of assets (i.e., the apartment complex or building). This reduces your risk and helps to ensure that your venture is more stable.
2. Passive Income
One of the best things about investing in apartment buildings is that they produce passive income. This means that you can earn money from your project without doing anything.
The rent payments from tenants will cover the costs of owning and managing the property, allowing you to enjoy consistent cash flow month after month.
3. Positive Cashflow
Another great benefit of housing investments is that they generate positive cash flow. This means that the rent payments from tenants are more than enough to cover the costs of owning and managing the property. This is a critical factor in achieving financial stability and independence.
4. 8-12% Returns
Investing in apartment buildings and multiunit properties has been shown to generate annual returns of 8-12%. This is significantly higher than the average stock market return, making it a wiser choice for long-term investors.
5. Equity Options
When you invest in a multiunit property, you’re not just investing in the property itself. You’re also investing in the equity of the property. This means that you have the opportunity to make money from your investments in two ways: through rental income and capital gains.
6. Valuation Potential
One of the best things about housing investments is that they offer high valuation potential. This means that your venture has the potential to be worth more in the future than it is today. When you invest in a housing property, you’re investing in an asset that has a lot of upside potential.
7. Lower Risk
Compared to other investing opportunities, housing intervention is a relatively low-risk project. This is because it is a tangible asset with a predictable income stream. In addition, multiunit properties are typically less risky than single-family homes, making them a safer undertaking option.
8. Tax Benefits
Investing in housing estate comes with several tax benefits. For example, you can deduct the interest on your mortgage, the depreciation of the property, and other qualifying expenses. This can help to reduce your taxable income and save you money in the long run.
9. Scalability
One of the best things about multiunit investing is that they are scalable. This means that you can invest more or less money into the property, depending on your needs and goals.
If you want to increase your returns, you can invest more money into the property. If you want to reduce your risk, you can invest less money into the property. This flexibility allows you to tailor your project portfolio to meet your specific needs.
10. Tangible Asset
When you invest in a multiunit property, you’re investing in a tangible asset. This means that you can see and touch the property. You can also see the income that it generates. This provides a high degree of certainty and security for investors.
11. No Tenants Headaches
One of the benefits of housing investments is that you don’t have to worry about dealing with tenants. This can be a massive relief for investors who are not interested in or do not have the time to deal with tenant issues. Instead, you can leave that to the property management team.
12. Professional Property Management
Commercial multifamily investments come with professional property management. This means that you don’t have to worry about managing the property yourself.
The property management team will take care of all day-to-day tasks, such as collecting rent, dealing with tenants, and making repairs. This allows you to focus on other aspects of your business.
A good property management team is key to the success of your multifamily investment. Make sure to research the team thoroughly and ask for references before deciding.
In summary, apartment rentals have always been a lucrative business, and it’s no different today amidst a nationwide rental crisis. As prices continue to rise, more potential buyers will push into the rental market, boosting returns for those who choose to invest.
