If you invest in multifamily real estate, or if you are planning on doing so in the near future, then most likely, you want to make as much money as possible without exposing yourself to too much risk.
However, despite the fact that many real estate investors want to optimize their investments, a lot of investors fail to get ideal returns and profits. One of the main reasons why this is the case is because they either failed to set specific investment goals, or they don’t know how to reach their investment goals if they have set them.
In this blog, we are going to explain exactly how to set and achieve your multifamily investment goals so that you can optimize your returns as a real estate investor and achieve your investment goals. Let’s get started!
1. Define Your Multifamily Investment Goals
It is impossible to reach your goals if you have not already defined them. For this reason, it is essential to start the process of achieving your goals by defining them clearly. Your investment goals should be reasonable but ambitious. There is nothing wrong with aiming high. However, you do not want to set the bar so high that it will be impossible to reach your goals. So, for example, if you are brand new to real estate investing, your goal could be to invest in your very first property within a 12-month time frame. If you are a seasoned real estate investor, your goal could be to add an additional 300 units to your portfolio each quarter.
2. Evaluate Your Resources and Capabilities
After you have created your investment goals based on your current financial situation, the next step is to start evaluating your resources and capabilities. This is because it is going to be essential for you to have a full understanding of these things before you start actually making investments. You should only invest money that you can afford to lose, just in case your real estate investments do not go as planned. On the other hand, however, it is important to invest enough so that your returns will be high enough to help you reach your goals. For example, if your goal is to have an additional $1000 per month in passive income, you would need to identify an investment that would yield that. For multifamily, an annual 6% cash-on-cash would generate $1000 monthly passive income based on an investment amount of $200,000. Try to create a specific figure for the amount of money you want to invest in real estate and what type of return you are hoping to get from it. Ideally, by repeating this across several assets, you'll in time have enough of a passive income stream established that you can potentially exit your W2 day job.
3. Research the Market and Select and Appropriate Property
Once you know how much money you want to invest in real estate, whether this is $100,000, $1,000,000 or $10,000,000, the next step is to find the perfect property. If you are not a real estate expert, you will need some help with this process. If this is the case, you can invest with a multifamily sponsor that manages all the details for you. However, if you opt to try and purchase and manage the investment on your own, finding the right property will be key. Ideally, you’ll want to target a property that is in a reasonably good neighborhood, that is in good condition, that will rent easily, and that will attract renters with stable incomes. It’s important to consider factors such as crime rates, school ratings, average household income, etc.
4. Structure the Deal and Complete Due Diligence
Even after you select the property, there is still a lot more work that must be done. For example, you are going to have to structure the deal and complete due diligence. This means doing a thorough underwriting to make sure the numbers will work and the deal makes sense. A property can look great, but will it really make you the money you’re hoping to get? In addition, you’ll need to also complete all of the legal paperwork and fill out all the documents that are necessary to complete the deal. Most likely, you will need the assistance of a real estate attorney during this process. After all, you want to make sure that you properly cross all of your T’s and dot all of your I’s. The last thing that you want is for your real estate investment to fail or stall due to issues with due diligence.
5. Manage the Property for Maximum Profitability
If you are going to manage the property yourself, then you have to do certain things to maintain maximum profitability. These things can involve making sure that vacant units are filled quickly, providing upgrades when they are needed, such as appliance upgrades, properly vetting tenants, etc. Property management mistakes can be quite costly for investment property owners. So you need to take the time to manage your properties effectively if you are going to be managing them yourself.
You must also make sure that there’s never a lapse in insurance and that all property taxes are paid on time. A lapse in insurance could be extremely costly if something bad happens to the building. For example, if there is a fire in the building during a period when you had a lapse in your property insurance, then you could be stuck footing the bill for the repairs yourself. In many cases, this could completely destroy your profits. Not to mention, if any injuries are sustained due to fires, water damage, or other issues at your property you could also be sued by your tenants. So, keeping all of your insurance policies up to date is critical.
6. Exit the Investment at the Right Time
Unless you are planning on holding onto your real estate investments until you die, you will have to exit them at some time. If you are going to sell your real estate assets, then you need to be very careful to do this at the right time. Ideally, you want to try to sell it when the real estate market is at its peak. This will help you to maximize your investment by capitalizing on property appreciation correctly. What you want to try to avoid is selling your property after a crash has occurred, when property values are significantly tricky. Timing your exit from your real estate investments can be challenging; however, If you do it correctly, then it can help you to reach your real estate goals.
When real estate investing is done correctly, it can build fortunes like few other investment vehicles. However, optimizing your real estate investment efforts is not something that is easily done. Following all of the steps in this blog can help to dramatically improve your chances of reaching your real estate investment goals.
However, for many real estate investors, it still makes a lot of sense to partner with a real estate sponsor. Real estate syndications are organizations that will invest your money on your behalf in real estate so that you don’t have to do all of the work. Ideally, a syndication is led by a team of real estate industry experts who specialize in finding and managing ideal properties to maximize your returns.
If you decide to go on your own, be sure that the numbers make sense and the investment truly has the potential to be successful. Make sure you complete all legal requirements and filings, including your insurance policies. Be mindful of the market and evaluate on an annual basis whether it would be a good time to sell or continue holding your investment (this also is dictated by your financing terms). Once you recognize the best time to sell, hopefully you’ll find that your investment provided a great return for you and you're one step closer to achieving your overall financial goals.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.