September 22, 2021
Best Ever CRE Community

3 Ways to Make Your Multifamily Rental Property a Better Investment

When you’re making a more significant property investment, it’s critical to take the time to ensure every unit, amenity, and feature is up to your standards. After all, multifamily properties are more significant investments with unique quirks, charms, and special considerations.

So, with that in mind, how do you make a rental property investment better? Since real estate and investment properties are trendy markets, you must factor in several key components if you want the best ROI. So, whether you’re looking to improve your cash flow from rental income or max out a building’s capacity, here are a few tips to help you find a better rental property and real estate investments.

Start smaller until you understand the real estate market.

Real estate switches and shifts more quickly than you might suspect. While rental property investing is an ideal way to develop alternative cash flows, you also have to keep in mind that the more you scale, the more tenant requests you’ll need to address and the more responsibilities you’ll have to juggle. So even if you’re going to hire a full-time property manager or landlord, you still need to consider how involved real estate can be. While plenty of real estate investors have the resources to fully outsource their property managers, landlords, and maintenance staff, other investors should consider starting small and scaling accordingly.

Though this doesn’t mean that you need to buy a single-family home as your first investment property, it does mean that you should start with a rental property with a handful of units instead of hundreds. If you’ve never considered rental properties or real estate before, it’s ideal to begin with something along the lines of a duplex. This helps you familiarize yourself with charging rent, setting up effective lease agreements, divvying up utilities, and maintaining renter capacity. Some beginning real estate investors even purchase a duplex or a similar type of property as a primary residence and rent out the other half. Though this type of investment isn’t for everyone, it’s an easier way to get into an income property and familiarize yourself with generating rental income.

Even if you’ve previously worked with a property management company or you’ve managed a single-family home, it’s helpful to consider how different apartment complexes and multifamily properties can be. Rental property owners have to ensure that they can scale their services to meet significantly increased needs while still developing a positive cash return. Even if you’re charging a higher monthly rent in a desirable part of town, tenant needs may quickly outclass business needs. When you struggle to keep tenants happy, this can muddy your investment strategy. Instead, leverage a small start, build experience, and try for more significant residential properties or commercial real estate opportunities.

Make improvements or add amenities.

Whether you’re listing a vacancy in a vacation rental or you’re trying to encourage long-term leases, your investment opportunity can always grow or improve, mainly if it’s your first property. Of course, there are a few pros and cons to making upgrades and renovations. As far as cons are concerned, each upgrade is a deduction from your positive cash flow, which can limit how quickly you can achieve financial freedom. Also, some renovations, repairs, and replacements require a lot of time and enough money. Even if you have an existing relationship with a contractor, an individual property’s maintenance costs can start to climb a great deal.

The pros are that when you invest in your first rental property, add amenities, and improve the curb appeal, you can improve the property value, expand your operating expenses, and grow your own money. This can help ward off depreciation should it come time to sell. You can even note some energy-efficiency tax advantages, which are excellent ways for homeowners to save enough money for larger projects and purchases.

Beyond that, it’s a good idea for active real estate investors to do their due diligence to maintain any residential or commercial property, whether they own a condo complex or have vacancies in a commercial real estate space. It’s the best way to show prospective tenants that you’re invested in every property within your real estate portfolio. Upgrades, amenities, and repairs mean a great deal to a lot of people, so you must consider the different ways you can improve a home’s value and meet tenant needs.

Work with qualified professionals.

Whether you’re a lifelong adventurer, an individual investor, or you’re simply looking to generate passive income, it’s always helpful to lean on industry professionals, especially when you think you’ve found the right property. Lenders, real estate agents, marketers, and other real estate professionals can help you navigate complex concerns surrounding monthly rental income, dividends, mortgage insurance, and other financial questions. You can also discuss what makes a good investment and how to find property management services to help maintain your family homes.

Some of these rental property and income property investment brands can even teach you the basics about taxpayer guidelines, how to avoid bad tenants, and how to find long-term relationships with contractors. In addition, some investment firms, local real estate agents, real estate developers, and rental property investors even have connections to local services so that you can find a good deal on partnered contractors, tradespeople, and designers.

Many active real estate investment firms also maintain portfolios of similar properties that can help investors make the best decision for their multifamily housing strategies. From office buildings to mobile home parks, there are plenty of property types that can help you generate monthly income.

About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast:

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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