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Multifamily Real Estate Investing

Multifamily Real Estate Investing

Investing in multifamily properties is a great option for those looking to get into real estate investing and feel comfortable with the responsibility and time commitment. Done right, they can be a great source of passive income. However, it’s important to have an in-depth understanding of how to find properties that will provide worthwhile returns on your investment, and subsequently acquire them. Crunching the numbers instead of being influenced by extraneous factors will quickly give you comprehensive insight into an overall project.

multifamily investment financing

What is multifamily housing?

A multifamily property is any residential property that consists of more than one housing unit and allows more than one family to live separately. Duplexes, triplexes, townhomes, apartment complexes, and condominiums are all examples of multifamily properties. Buildings with more than four units are considered commercial properties.

As the owner of a multifamily asset, you can either live in one of the units and rent out the others or live in a different property and rent them all out. If you live in one of the units, the building is considered an owner-occupied property. If you don’t live on-site, you’re considered an investor. This is important to know because the rules for obtaining a loan or mortgage are different for occupying owners and investors.

Real estate financing options for multifamily investments

Financing options for multifamily housing investments include cash financing, hard money lenders, banks, seller financing, and peer-to-peer lending. Generally speaking, every opportunity will be different, and which financing route you choose will depend on your timeline, your financial situation, and other factors. As mentioned previously, if you choose to live in one of the units while renting out the others, your property would be considered owner-occupied. This means that when you’re looking for financing options, the second unit’s income will be factored into the lender’s qualifying factors and may make it harder to find a loan.

How to buy multifamily properties

Much like purchasing a single-family home, there are real estate websites such as LoopNet.com that allow you to filter results for the type of property you are looking for. Another option is to work with a real estate agent who specializes in multifamily housing. They may have a greater understanding of opportunities in your area and even some that have not yet hit the market. If you’re looking to invest in a duplex, triplex, apartment building, or condominium complex, you can begin your search with this checklist:

  • Location: Location is one of the most important factors for real estate investors, particularly for multi-family properties. You should choose an area with high employment, well-maintained neighborhoods, population growth, and where housing is in high demand.
  • Number of units: Evaluate the property as a whole. Investors should consider the number of units in the property, including the number of rooms in each unit. If you’re a beginner, we recommend beginning your real estate search with three types of multifamily properties: duplexes (two units), triplexes (three units), or four-plexes (four units). Typically, these properties have the most upside with the least amount of risk.
  • Potential income: The next step is to determine how much income a property can generate. There are websites such as Rentometer.comZillow, and Realtor.com that let you analyze rental rates based on the size and location of your property. If you’re looking to remain conservative, you can use the 50 percent rule. As the name suggests, you should estimate your operating expenses to be 50 percent of the gross income. So, if a rental property makes $40,000 per year in gross rents, you should assume $20,000 would go towards expenses. This does not include the mortgage payment.

multifamily property financing

The benefits of multifamily investing

Some benefits you can expect when investing in a multifamily property and which will make your investment worthwhile include:

  • Greater cash flow: Unlike single-family properties, which generate one source of monthly income, multifamily properties draw rents from multiple units.
  • Less risk: When investing in single-family rentals, income is lost when the home is vacant. However, because multifamily properties have numerous units, you can offset the loss of income from one vacant unit with the income from others.
  • Taxes: You can make more income by renting to multiple tenants while only paying taxes on one building. You can also write off some of your home maintenance as a business expense and prorate part of your mortgage interest payments.
  • Scalability: With multifamily investments, the multiple units involved count as multiple properties instead of a single-family home representing one property. It’s a great step towards growing your real estate investment portfolio and possibly venturing into mixed-use and/or larger apartment properties.

The challenges of multifamily investments

Despite all the benefits of investing in multifamily properties, there are some downsides, which include the following:

  • Multiple units = higher cost: Multifamily investment properties usually cost more upfront. You also need to factor in the maintenance costs of multiple units.
  • Being a landlord: Finding and managing tenants is a time commitment. If you live near your tenants, you may get knocks on your door throughout the day with maintenance-related questions. And you’ll need to feel comfortable screening and negotiating lease terms with your tenants.
  • Selling the property: It can be more complicated to sell a multifamily property that has tenants because you’ll have to coordinate showings and appraisals.

multifamily investment

Setting yourself up for success

On top of the considerations we’ve outlined, does the property allow for a healthy return on your investment—in terms of both time and capital—or is it a deal that’s too good to be true? Performing your own due diligence is critical to determining which properties will allow you to extract the most value. Additionally, knowing when to say no to a deal is just as important as knowing which projects are worth it.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

Co-Living: What Is It and Will It Survive COVID-19?

Co-Living: What Is It and Will It Survive COVID-19?

A housing option that was once utilized primarily by college students is becoming more popular among young professionals across the globe. With rent prices rocketing in many primary-market cities like New York, San Francisco, Seattle, Washington D.C., and Chicago, urban life is out of reach for many, unless they pool their living resources in a co-living situation. This trend can be a good opportunity for investors as well as a great way for young people to live in urban centers. But will it survive the pandemic?

What is co-living?

Co-living isn’t what it used to be – it’s evolved from a few friends sharing a home to strangers sharing fully-furnished apartments. Landlords have found that by fully furnishing apartments and renting them out by the room, renters have the opportunity to have a nicer home (and better amenities) without breaking the bank.

In this new take on co-living, residents get a private bedroom in a fully furnished home but share common areas like cooking and living spaces. Co-living became popular in major cities as a form of affordable housing for students, young workers, digital nomads and city newcomers. Residents are attracted to this way of living due to the affordability, flexibility, included amenities, and sense of community.

Co-living was first popular in cities such as New York and London. Over the past few years, it’s now spread to other areas including San Francisco, Los Angeles, Chicago, Seattle, and Washington D.C. It may soon be coming to a city near you.

Why did co-living become so popular?

The increase in co-living springs from high costs of living in major cities, but also from the sense of community and belonging that is inherent in this form of living—qualities that are important to millennials. As you would expect, this trend has been most popular with younger generations, especially digital nomads who want to travel often and don’t want to worry about the upkeep of a home. This is the ultimate free lifestyle.

Benefits of co-living for investors

One reason co-living has become a popular choice for investors is the hope for higher rates of return on their properties. Real estate investors get higher net rent premiums, net operating income, and occupancy rates.

Higher rent premiums
Co-living floor plans hold nearly twice the number of bedrooms as traditional apartments, resulting in residents occupying less square footage in areas where space is at a premium and property values are high. According to JLL research, “co-living assets can capture a more than 30% net rent premium.”

Higher net operating income
By increasing the density in units and renting by the bedroom, property managers can secure higher rents per square foot, resulting in higher net operating income

Higher occupancy rates
Another reason why investors have been attracted to this trend are the high occupancy rates. As previously mentioned, multiple factors contribute to these higher rates, including the lifestyle’s affordability, flexibility, and better amenities. Even when there are vacancies in co-living spaces it’s still possible for the unit to produce anywhere from 30-50% higher than normal rent for a similar, single-occupancy unit.

Reduce the risk of sub-letting
In areas where rent is high many tenants sneak in a roommate without making the landlord aware. Co-living spaces all but eliminate this common risk of sub-letting since tenants don’t need to fill open bedrooms. Instead, the property manager or landlord can vet applicants.

What are the disadvantages of co-living for investors?

Investors can be wary of investing in co-living properties due to higher turnover rates, non-standard lease terms, and the expenses related to turning traditional apartments into co-living spaces. Some may find it a challenge to create and organize the events that support the best communal living experiences, as well.

COVID-19 and co-living spaces

Industry analysts remain optimistic about the co-living sector. A lot of co-living companies and complexes are in highly populated cities, and near major universities. Gregg Christiansen, president of co-living company Ollie, stated in a Fox Business interview that “Most of this demand came from students that didn’t have the opportunity to go home to their families or another location to go to when the campuses closed. It gave accessibility and a seamless transition for a lot of people that were displaced when college campuses closed.”

Co-living spaces have created an alternative to studio apartments, which are typically 30 percent to 40 percent more expensive. In fact, the social atmosphere that residents enjoy in co-living environments help bring a sense of normalcy while many are by themselves at home.

It may seem counterintuitive to quarantine orders to be sharing spaces with others – yet many co-living companies have found ways to ensure safety for their tenants. In addition to these new safety measures, they have also employed new methods to entice renters throughout the pandemic. One called Starcity, for example, has been offering concessions for housekeeping, access to online workouts, and rent discounts.

The future of co-living spaces in commercial real estate

While co-living hasn’t quite disrupted the multifamily sector, it could be a trend that steadily increases in popularity. Reza Merchant, founder of UK-based co-living company The Collective, told Forbes “The pandemic is going to be good for community. People are appreciating the value of connection more than ever and will look for it in the way that they choose to live in the future.”

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Multifamily Guide: How to attract Generation Z renters

Each generation has its own quirks. Gen Z is no different and appears to be more practical than others. While we’ve seen that some generations are happy to rent forever, Generation Z sees it as a stepping stone. In fact, 97 percent of them want to buy a home someday. Now, most of them won’t leave their parents’ home and immediately buy a house. This means you still have a chance to reach them. With this in mind, let’s cover how multifamily operators can reach Gen Z where they are spending most of their time – online.

Social media marketing

Gen Z is more reluctant to use traditional social media channels such as Facebook. Instead, try reaching out to them via a partnership with influencers and creating a strong presence on channels like Instagram, Snapchat, YouTube, and TikTok. Influencer marketing is a useful way to spread the word to younger renters. Consider setting up a referral program to your residents in exchange for promoting your community.

Online video content

It’s official. Gen Z spends the least amount of time watching TV. They spend most of their time watching online videos, so consider sharing video tours of your property. To help keep their attention, be sure the content is concise, engaging, digestible, and shareable.

Mobile-friendly website

Generation Z spends an average of 26 hours per week on their mobile phones and uses laptops rather than desktops. They also grew up with Google and Siri in their back pockets, so they expect fast and easy interactions. Forget about emailing or calling, they want to ask a question and have an immediate answer. Multifamily websites are no exception, property managers will want to make sure that their website is optimized for mobile and accessible on the go, from any device.

You might ask yourself; how do I fill this need of instant gratification? Try adding chatbots. Chatbots are programmed to interact with users. They get to know a user by asking a series of questions and are then able to provide the user with answers. For example, a chatbot could ask a user where they want to live, how much they want to spend, and what amenities they want. Then based on those preferences, respond with information. Chatbots could also help with managing maintenance requests. A renter can interact with the chatbot making them aware of a broken A/C unit and schedule the maintenance. Allow Gen Z renters and other potential renters to interact in the way they want.

How to appeal to Gen Z renters

Keep it simple, mobile, and digital. Make everything accessible online– basic communication, rental applications, community news, virtual tours – all these can and should be managed online.

Create a highly rated online reputation

Be authentic. This generation is keeping up with what you’re posting to social media and what is said about your community online. Stay consistent and realistic with all your posts and responses to online reviews. If you receive a bad review, it’s not the end of the world, just be sure to respond immediately. For Gen Z, seeing the negative reviews might provide balance and will allow you to show how you deal with conflict in your community.

Pricing

As natural researchers, Gen Zers know where to look for the best deal and answers. Property managers must keep units priced appropriately to capture this group. If you have your apartments listed above market value, they won’t be attracted to your community.

Gen Z is a largely untapped market waiting to be recognized. If your real estate business is proactively seeking to tap into this market and improve resident engagement, implementing the technologies and content strategies that appeal to this generation should be a large part of your strategy. If companies manage to incorporate lively video posts and conversation-starting events into their marketing routines, they will increase their odds of winning over this generation.

 

Related article:  The growing impact of Gen Z on the Multifamily Housing Industry

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

The growing impact of Gen Z on the Multifamily Housing Industry

What Gen Z renters are looking for in their community and from property managers

 

Watch out, there’s a new generation defining the future of the multifamily industry. While millennials make up 56 percent of the rental market, Gen Z comprises 74 million people, making it equal in size to millennials and baby boomers. Even though they may be young, they have money to spend. They contribute $44 billion to the U.S. economy and it’s only a matter of time before they head into the rental market.

If you rent to college students, you might already be familiar with the preferences of Gen Z renters. If not, you may ask yourself how different are their preferences from those of the millennials? The primary difference is their relationship to technology. Gen Z relies on social media and the internet to make purchasing and lifestyle decisions more than millennials. They understand how to leverage technology to benefit them and find the information they need.

Personalization

Gen Z is used to having everything personalized just to their liking. From their playlist to their newsfeeds, their world is designed to their tastes and interests. Look further and you’ll see that this generation is the most connected to brands through which they can build experiences. For commercial real estate, this means cultivating individualized tenant experiences.

Affordability

Finances are often front and center for most generations, but even more so for Gen Z. They would rather put their money into their businesses and savings accounts than into rent. Rental prices that allow them to do this while not feeling house poor are ideal. Longer term leases, 18 to 24 months, are more attractive to this group than 12 months. They appreciate the stability and they want to know what their rent will be over a year from signing to avoid worrying about what their next step is.

Human interaction

Gen zers having a game night in apartment complex

Community. Gen Z craves community, one that helps build a creative network. Incorporate resident events and other activities such as movie night, pool parties, and game nights. If your apartment community hosts property-wide events and spaces, make sure you promote them. This will help attract Gen Z renters and help build your commercial real estate community.

Positive messaging

88 percent of Gen Zers invest in companies that share their values. Have you sponsored a charity event or local sports team? To attract these renters, use social media to share your apartment community’s involvement in the neighborhood.

Authenticity

As mentioned before, this generation craves a company they can connect with and trust. Figure out your community’s brand and core values, then start building an authentic marketing campaign around it. Share residents’ stories, educate renters and provide them the opportunity to build relationships.

Energy-efficient amenities

 

Again, this generation is passionate about environmental causes. In fact, the majority of them define success as having made the world a better place. So, investing in green amenities is worth the upfront costs. Whether you’re building new or updating older units, make more sustainable choices. For example, upgrading the windows to energy-efficient panes and installing eco-friendly appliances are good places to start.

Consumers drive the market, and the best businesses are the ones that meet and exceed those needs. Gen Z may be new, but they are making a large impact on the multifamily industry. So get social and start reeling in new residents!

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.