Investing in multifamily real estate is an exciting opportunity, but It’s also an opportunity filled with potential mistakes that could negatively impact your investment. Before committing to becoming an investor in a multifamily real estate investment, learn about several common mistakes to avoid.
1. Investing by yourself
Real estate transactions are all about the people handling those transactions, and your success is heavily influenced by the people who surround you.
To successfully invest in multifamily real estate, you need a team of qualified people to help you find properties, assess properties, source lending options, and providers, and maintain and improve the properties. Many people are involved in starting and managing a real estate investment, and every one of those individuals needs to be trustworthy.
An alternative to managing the investment process yourself is to invest in a REIT instead of trying to build a portfolio of multifamily properties by yourself. A multifamily REIT uses their management team to handle the acquisition and management of all aspects of the property transactions while you reap the benefits of their work and expertise.
2. Struggling to fund multifamily real estate deals
Large multifamily properties aren’t cheap to purchase, and they typically can’t be bought with a conventional mortgage. In some cases, it can be easier to find and negotiate the deal before funding is secured, and by the time the funds are available, the deal has fallen apart.
The alternative to cobbling a deal and financing together could be an investment in a multifamily REIT. Experienced managers within the REIT find, source, negotiate and fund multifamily real estate deals much more quickly and easily than investors trying to break into the industry. Initial contributions for a REIT are low, and existing after-tax retirement accounts like Roth IRAs or SDIRAs can fund the investment.
3. Buying the wrong investment properties
We’ve all heard this location is the secret to a highly profitable real estate investment. But how do you properly vet the right geographic location? Even if you’re looking to invest in a multifamily real estate investment opportunity in your hometown, it takes years of experience to understand how to identify the right properties with the correct income and appreciation potential.
Instead of grabbing at the first “good deal” that crosses your path, you can invest in public non-traded REIT like Upside Avenue and leave all the property evaluation and analysis to our professional management team.
4. Trying to predict future appreciation
The return on investment of multifamily real estate isn’t necessarily evaluated the same way as a single-family home.
The value of a multifamily real estate opportunity is about the income it generates, not solely about the appreciation, which is where the primary focus is when purchasing a single-family home. Multifamily properties take longer to appreciate than single-family homes, and economic conditions affect those investing in multifamily real estate more so than others.
Understanding how to calculate a multifamily real estate investment’s potential takes experience and knowledge that most individual investors don’t have.
Upside Avenue’s portfolio of multifamily properties offers diversification that can more easily whether any economic shifts in the future rather than placing all of your investment eggs in a single basket.
5. Gambling on cash flow – underestimating costs and expenses
Investment and management of multifamily properties requires holding cash in reserve to handle emergencies. Otherwise, investors may find themselves struggling to handle unexpected maintenance costs and repairs. Multifamily property investors may need to pay for unanticipated expenses on day one, simply to run the property.
If the property is in a hot and up-and-coming geographic or demographic market, renters may insist on improved or even luxury amenities to sustain and renew their leases and prevent tenant turnover and vacancies.
If you’re investing in a multifamily real estate property with negative cash flow, you’re putting yourself in a precarious position; even if you have the capital to sustain your operations, your cash position can change quickly and put your investment at risk.
6. Ignoring diversification
One of the best ways to reduce risk in your investment portfolio is to diversify, and in the case of real estate investing, it means owning different types of properties with additional income potential and another potential for future appreciation.
Focusing all of your investment attention and funding on a single multifamily property may introduce more risk than if multiple properties with different income potential and at different stages of appreciation were part of the portfolio.
A REIT like upside Avenue offers ideally suited for the diversification of your investment dollars. The investment is spread across the entire portfolio of multifamily properties and helps mitigate and lower the risk associated with any particular property’s failure.
7. Not following local tenant laws
Every state and municipality has specific laws that dictate the terms of a tenant-landlord relationship. Managers of tenants are responsible for knowing, understanding, and following those laws and regulations. Investors can get themselves in legal trouble when they inadvertently break laws they didn’t understand or know existed.
A professionally managed REIT is well-versed in managing tenant relationships. Additionally, they’re regulated by the SEC and are subject to state regulations, and they have a vested interest in operating within the laws designed to protect tenants and improve the overall quality of the communities in which they invest.
Investing in a multifamily property is a high level of commitment and investment. Beyond the monetary investment, there’s a better way to make a significant investment in multifamily real estate.
Before diving into a multifamily real estate investment, it’s always a good idea to speak to a financial advisor and legal counsel to clarify your risks, requirements, and regulations that surround a potential investment.
About Upside Avenue
For decades, the ultra-wealthy and financial institutions have been putting their money to work in real estate—now with Upside Avenue, you can too. We provide access to a professionally managed, diversified portfolio of income-producing multifamily real estate for as little as $2,000. Learn more about the Upside Avenue Multifamily REIT with targeted returns of 10-15% IRR.