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Investing in Multifamily: Tips for finding your first deal

Tips for first time multifamily investors.

Are you ready to start investing in multifamily properties for the first time? If you answered yes, you are not alone. More and more investors are taking a closer look at multifamily properties as part of their investing strategy. Recent changes in government regulations, consumer demographics, and market trends are just some of the factors making multifamily housing more attractive. Here are several of the key factors shaping the multifamily property market.

Multifamily housing is helping to address the affordable housing crisis. We are in an affordable housing crisis, and it’s likely to be that way for some time. Multifamily housing is more affordable, which makes it more desirable.

New government rules are favorable for multifamily properties. In August 2019, the FHA issued a new condominium approval rule that will bring more projects online and make condos easier to buy. You can read more about the condo approval rule and what it means for both buyers and investors here.

Shifting demand. The demographics of home buyers are changing. As a result, this is creating more demand for multifamily properties. For instance, many millennials are starting to buy their first home while baby boomers are downsizing. Due to the lack of affordable housing, both groups are turning to multifamily housing to meet their housing needs.

Fed rate remains low. The Fed continues to keep rates low. This is great news for multifamily housing, since this asset class pricing is tied to debt pricing.

Even though multifamily housing is becoming more popular, there are challenges and risks that new investors should be aware of. Before you start searching for your first multifamily property, read about the pros and cons of multifamily investing here.

How to start investing in multifamily properties
Now that you are ready to start investing in multifamily properties, how you are you going to find your first property? Below are some tips to help you get started.

Start small. If you start with a smaller property, such as a 2 to 4-unit property, it will be more affordable, easier to finance, easier to manage and come with relatively lower risk. A good strategy when you’re first starting out is to live in one of the units.

When you are ready to look for your first multifamily investment property, you’ll want to investigate both On-Market and Off-Market sources.

Off-Market sources
The advantage of using Off-Market sources to find multifamily properties is that you can often find better deals. However, good deals often mean more work. You should be prepared to put in the time and effort needed to uncover the opportunities. Here are tips to help you get started with Off-Market sources.

  • Research public property records. Visit your local county recorder, clerk or assessor’s office to perform a property search. There are also online platforms that will do much of the work for you, but you’ll probably need to pay for the convenience. You may also be able to uncover Off-Market opportunities by searching eviction and default notices. For instance, a landlord who has just served eviction notices may be fed up and ready to sell. Owners in default may be looking to sell their property quickly.
  • Leverage your network. Like many businesses, much of real estate investing is done based on relationships. Let your network know you are in the market for a multifamily property.
  • Seek out Mom and Pop owners. I have had a lot of success with this strategy. Through tax records and other means, I have been able to find what I call Mom and Pop owners that are ready to offload their properties at a discount.
  • Talk to bankers. If you don’t already have relationships with bankers and other lenders, start making them now. These individuals can be a wealth of information, and they often learn about properties coming up for sale early on in the process.

On-Market sources
The advantage of On-Market sources is that they are easier and less time consuming, but you’re not likely to find a sweet deal. Sources for finding On-Market multifamily properties for sale include:

  • Commercial broker websites
  • Property search tools (listing platforms, property finder tools, heatmap analysis tool)
  • Driving neighborhoods

Multifamily properties are becoming more popular among real estate investors. While these properties can make a good investment, they can also be more challenging than single-family properties. This is especially true for those just starting out. Make sure you understand all the pros, cons, and risks before venturing into multifamily properties. When you are ready to find your first property, it is beneficial to utilize a variety of sources, including both Off-Market and On-Market.

If you need financing for your multifamily investment, check out our loan programs here. Our multifamily loans are intended to provide Minnesota borrowers with short-term financing for construction or rehabbing non-owner-occupied investment projects.

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