Have you been thinking about getting into the multifamily asset management space? You may have done a lot of research about the process, but you’ll need more than that if you want to be successful.
We spoke with Ashley Wilson, who runs a successful multifamily syndication business, to get some insider secrets to investing in multifamily properties.
Why Get into Multifamily Asset Management?
Multifamily properties are a great place to get your feet wet. These properties often already have some income, so you’re not tying up your money for a long period of time. In some situations, you can make some simple modifications and restructure some management issues to maximize your profit.
If you don’t have a lot of investment capital, it makes financial sense to buy one property with several units instead of buying several properties. It’s often cheaper to do your renovations on units in the same place than in multiple areas. There’s much less risk involved with multifamily spaces.
Secret #1: Choose Value-Add Properties
One of the biggest trends in the commercial investing space is to choose value-add properties. You can often find properties that already have a steady cash flow, make improvements to add value, and then either increase your income or flip the property.
There are many types of value-add properties to consider. Some properties will have obvious fixes, but you should carefully consider each property you come across. Some may have value-adds that aren’t as obvious, such as a change in marketing, that can make a huge difference and greatly increase your profit.
Secret #2: Always Be Available
If you’re going to be an active investor, you’re never really off the job. Things come up all the time, and time is money. If you’re not willing to put in the hours and deal with issues as they come up, then you may want to look into another type of commercial investing.
Secret #3: There’s No One-Size-Fits-All Solution for Every Property
Each property is different and has its own unique set of problems. While it would be nice to completely streamline the renovation, active investing involves evaluating each property in isolation and coming up with an individualized solution so that you can maximize your profits.
Some are properties that are in physical disrepair. These may need structural or cosmetic modification to make them safe and more appealing to buyers and renters. Some properties have been damaged in natural disasters and were left vacant when the owners couldn’t afford to have them repaired. Other properties are simply behind on maintenance and just need some minor repairs and updates.
Other properties have issues that aren’t so obvious. Some have issues within management that prevent the property from bringing in as much profit as it should. An active investor can hire and train new management and turn the property around.
Finally, some properties need to be pivoted. An investor can add amenities and restructure the marketing to target a different demographic.
Secret #4: Partner With a Contractor
One of the biggest secrets to successful active investing is to partner with a contractor or make sure someone on your time has a background or extensive knowledge in contracting. Many investors hire a contractor to renovate their commercial properties, which can lead to spending more money.
Independent contractors are out to serve their own business, not yours. Their bottom line is making money for their company, and it doesn’t matter to them if they save you money. When you partner with a contractor, they have a vested interest in being as cost-effective as possible.
If you don’t partner with a contractor, having someone with contracting knowledge on your team is the next best thing. They can meet with contractors and evaluate bids to make sure you’re choosing the most cost-effective repairs and methods.
Secret #5: Sometimes Paying More Saves More
Everyone goes into multifamily syndication with two goals: spend as little as possible and make as much as possible. However, many investors don’t realize that sometimes spending as little as possible costs more money in the long run.
When you’re involved in a renovation, you sometimes will have the option between spending less and waiting longer for the job to get done and spending more and getting a job done quickly. When you’re considering whether to spend less or more, always consider time as a factor. If waiting for a project to get finished will cost you in other places, it’s best to pay more and get things finished quickly.
Secret #6: Get to Know Everyone You Work With
When you’re investing, you can work with a wide range of people and your team may change from one project to another. It can be difficult to get to know everyone, but it’s worth the time and effort.
The better you know your team (and the better they know you), the better you can work together. If your team knows you well, they can often save time by making decisions and doing things the way you’d want them to.
Secret #7: Don’t Let People Take Advantage of You
When you’re working in commercial properties, there will always be people who try to take advantage of you, especially if you’re new to the game. Contractors and others you hire will assume you know very little and try to take advantage of that.
They may try to cut corners or may try to charge you more for a project. Subcontractors will often make a small problem seem like a much larger one to charge you more. When you’re new to multifamily syndication, the best thing you can do is get knowledgeable, experienced, and trustworthy people on your team. Their advice will be invaluable. You should also be thorough. Do your due diligence before agreeing to anything.
Secret #8: Everyone on the Team Has to Be on Board
If even one member of your team isn’t invested in the project, you can run into big problems. Everyone — from the GPs all the way down to the subcontractors and property management teams — needs to be working toward the same goal.
It’s up to you to set the tone and be a great leader for the team. You have to have high expectations for everyone, including yourself.
Secret #9: Cultivate a Good Reputation
When working with multifamily properties or any type of investing, it’s important to cultivate a good reputation. You want your business to be seen as both professional and a standard of excellence. Not only will people want to work with you, but they’ll think of you first when a project becomes available.
If you establish a great reputation, realtors may contact you when they find properties they know you’ll want. They may even help you to get these properties because your good work reflects well on them.
When you’re new to active investing, it can seem overwhelming. It’s a lot of work and you may feel like others with more experience are doing it so much better than you are. But if you’re willing to work hard and follow these tips, you can be successful.
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.