Experts agree that multi-family properties offer great investment potential. Demographic, economic and other factors will increase demand for apartments over the coming decade while the supply of new units in many areas will continue to be limited, especially in high barrier-to-entry locations like coastal Southern California where growth controls and other land use policies restrict new construction.
Multi-family investment is a sure way to make a lot of money quickly, right? Not so fast as no investment is a sure thing. Despite the hype on late-night infomercials, hitting a home run in real estate is not as easy as it may sound. Real estate investing should never be viewed as a get rich quick scheme, but rather more as a solid path to long-term financial well -being. So, what are the key mistakes that can put your hard-earned equity at risk and how can you avoid the most common pitfalls?
The most fundamental error an investor can make is “winging it”. Multi-family investment is a business and should be approached with a strategic and deliberate plan. Unfortunately, many investors perceive real estate as a transactional or opportunistic endeavor based on a belief in short-term profits versus careful consideration of long-term goals within the context of personal priorities, as well as available resources of time and money. By taking the time to clarify investment goals and understand local market dynamics and some basic principles of the multi-family business, buyers can make well-informed decisions. Carefully choose acquisitions based on the types of property, tenant profile and locations that are best suited to your multi-family investment business plan. Make strategic choices about when to trade-up or sell buildings, assess the types of improvements that will generate the best return and learn how to manage assets to maximize profit and value.
Getting emotionally involved may be good for your personal relationships but it is a bad business move. Falling in love with a property can cause buyers to overlook critical flaws like deferred maintenance or inflated rents. Walking away from a great deal because you are upset, frustrated or angry with the other party involved in the transaction could cost you a fabulous opportunity. Establishing a relationship with a qualified, trust-worthy multi-family broker will provide an important sounding board for decisions and a necessary buffer in helping complete the transaction if principals become contentious. Having a well thought out investment strategy will also help avoid impulsive or emotionally-charged decisions.
