Daniel Stewart

What Makes a Multifamily Investment a Good One?

Owning a multifamily investment property is a wise decision, but how do you know when you've found one that's worth adding to your portfolio? Below are a few of the most important factors multifamily brokers will consider.

It will provide a reliable monthly cash flow.

To be profitable, you should be able to fill vacancies quickly in a multifamily property. That way, your income will exceed your net operating costs (NOI), including expenses like your mortgage payment, taxes, insurance, maintenance, and property management. If you can determine that a multifamily property will provide a reliable monthly cash flow that will be profitable, it is likely to be a successful venture.

You'll also want to consider the property's capitalization rate, which is an estimate of the property's profitability. To calculate this, you need to divide the property's NOI by the current market value (the current listing price). The higher the capitalization rate, the more profitable the property is likely to be.

It's within your budget.

Many multifamily brokers will tell you that investing in multifamily properties can be cost-prohibitive for many people. The upfront cost is high! Although lenders may be willing to give you a loan with a good interest rate (depending on your credit and income), you'll still need a 20-30% down payment for a property that may be worth millions. The best multifamily investments are ones that your due diligence finds will be profitable yet are still within your budget.

The location is great.

You'll need to do your due diligence to ensure that the property's location will increase the property's value over time. This will require a lot of market research, which a broker can help with. You'll also want to consider the local trends, such as certain emerging submarkets that may rise in profitability over the next few years.

Experienced multifamily brokers are giving you the thumbs up.

A good and reliable multifamily broker will have experience in the geographic market and transaction size, with a positive track record to boot. Suppose you're working with one of these specialized real estate professionals. In that case, they will be able to tell you when they think an investment property will not be profitable, so you can potentially avoid any disastrous financial consequences and make wise investment decisions. This is especially helpful if you want to invest in a multifamily property for the first time.

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Daniel Stewart advises people about real estate, property investment, property management and affordable housing schemes. You can find his thoughts at assets management blog.