Investing in Multi-Residential Real Estate – 5 Do’s

Identify your investment strategy for the current, interim and ultimate return.
Clearly identify what you are trying to accomplish:  Cash flow for present lifestyle or cash flow for retirement?  Equity appreciation rather than cash flow that can be currently taxed at a high rate?  Building your legacy for family? Immediate, interim or future tax shelter?

Is this a long term or short term hold?  Is your plan to buy and flip this property?  Take advantage of an anticipated change in the marketplace coming in the next few years? Satisfy an existing exchange requirement in the immediate?  Begin to plan for exchanging into a personal residence for retirement years ahead?

For the sake of what are you investing and what is the lost opportunity cost to you?

Build a network of help.
Identify, seduce and build an accomplished a well- grounded network of strategic and tactical help that is impeccable in their execution and timely in their delivery.

Partners must include CPA or tax attorney accomplished in your local area and possibly asset class, real estate brokerage skilled in working with a collaborative partnership, mortgage financing, property management, trust attorney and preferably not a “captive” insurance advisor but an independent broker and always a wealth manager to provide that alternative thinking to real estate investments.

Wise investing with optimal returns now demand collaboration across complimentary disciplines.

Select properties that have underlying value drivers.
Value drivers will contribute to long term rental and purchase desirability.

Proximity to employment campuses, top rated schools and universities airports, medical campuses sports stadiums, and transportation systems, built or to be built are conducive to securing quality tenants who in term increase the value of the investment.  Researching and thereby understanding future plans (known as Master Plans) large or small for the area in consideration impact strategies and return on investments.

Locate “pockets” of multi-family investments surrounded by single family homes.  These pockets will attract quality individuals and families wanting to occupy such an investment increasing the demand.  An increase in demand with a limited supply increases the leasing price and stabilizes the turn over producing an optimal ROI for an investor.

Know your governmental restrictions and requirements.
Few private investors include understanding the present and future governmental restrictions and requirements as part of their strategy to invest. Institutional investors use governmental restrictions and requirements as part of their investment strategy to optimize their ROI (return on investment).

Imagine the impact or benefit of:

  • Rent control restrictions
  • Below market housing requirements (BMR)
  • Mandatory participation in city runs property management programs
  • Eminent domain
  • Capital gains increase, decrease, elimination

Gather and review with fervor and detail the reports, inspections and disclosures.
Obtain tenant signed estoppel certificates for all tenants
Review investment financial statements with skepticism
Review tax returns with pragmatism
Review all leases
Obtain full inspections: roof, HVAC, termite, property, chimney, prelim, pool

Inspect the property and meet the tenants – ask questions about their assessment of the property, owners/management company’s management and maintenance style

Speak to the tenants in the adjacent buildings
Check police reports
Contact previous owners or other owners in the area