Multi-Family Real Estate Investing 101: What it Is and How to Get Started

Real estate is an incredibly profitable and beneficial investment, but many potential rental owners don’t know where to start. One of the best things about investing in the housing market is that you have endless options. Homes, condos, apartments, duplexes, and other property types offer rental owners a chance to gain financial independence. What if we told you that multi-family real estate investing is perhaps the most lucrative path for rental ownership?

We know how daunting it can be to purchase a multi-family rental property. However, we’re going to make it easy on you. In this article, we’re going to break down everything you need to know about multi-family real estate investing. We’ll also add our best multi-family investment strategies so you can be set up for success from day one. Let’s start by defining what a multi-family property is. 

What are Multi-Family Real Estate Properties?

It’s no secret that becoming a rental property owner is a lucrative investment. More than that, real estate appreciates over time allowing property owners to increase rent prices over the years and rake in extensive profits. There are two main types of rental properties you can invest in: single and multi-family. 

A single-family property is a residential building meant to house a single tenant or family of renters. On the other hand, multi-family real estate has more than one rentable space available for multiple tenants or families. There’s a diverse set of multi-family properties including:

  • Condo Complexes
  • Apartment Buildings
  • Low-income Housing
  • Retirement Homes
  • Duplexes, Triplexes, or Quadruplexes

While renting out single-family properties can be very profitable, investing in multi-family real estate can be a better choice in the long run. However, multi-family rental property ownership is a whole different ball game compared to single-family investment properties. Here’s how to invest in multi-family properties starting today! 

4 Steps to Multi-Family Real Estate Investing for Beginners

Don’t know where to start with multi-family real estate investing? Here are four steps you can take to become a successful multi-family rental property owner: 

  1. Find a Multi-Family Property
    Location is possibly the most important part of finding a rental property that will succeed. Southern California areas such as Orange County and the Inland Empire consistently rank as the top regions to invest in multi-family properties. Neighborhoods with excelling school districts, increased job opportunities, and proximity to recreational activities are communities you need to consider when doing research for multi-family properties.
    The location of your rental property can be the difference between high-quality, trustworthy tenants and those who neglect the upkeep of your rental. For example, if you find an apartment building within walking distance to a university, you’ll most likely be renting to college students. While some rental owners don’t mind this at all, others find it difficult to work with students who don’t pay rent on time and struggle to maintain a clean property. Whatever you decide, do the research beforehand and hone in on what type of tenants you’re looking for. 

  2. Do the Necessary Calculations
    Now it’s time to do the math and see if the multi-family property you found is worth the investment. The best way to do this is to grab a calculator, crunch the numbers, and figure out how much a specific multi-family property can make you as a rental owner. Start by calculating the difference between your expected income (rent payments, parking fees, storage fees) and expenses (maintenance, repairs, etc.). If you don’t have access to that information, use the common 50% rule—the estimated monthly income split in half is your new monthly expense number. The difference between these two is called the net operating income (NOI).
    After you’ve determined the NOI, the mortgage payments are brought into the mix. To find out how much passive income you’ll be earning each month, subtract the monthly mortgage payment from the property’s NOI. This should determine how much you’ll be making each month, and you can decide from there if it’s worth it for you or not.

  3. Make an Offer
    Once you’ve found the perfect multi-family property that will pay off in the long term, you’re ready to make an offer! You’ll most likely need to find a lender to finance your multi-family real estate which calls for time and energy. Financing a multi-family investment property is much different than purchasing a place of residence, with contrasting interest rates, types of loans, and requirements.
    The loan you decide on depends on the property you choose to invest in. For example, the Federal Housing Administration loan allows for a smaller down payment if you purchase a triplex and plan to live in part of it. That’s a great deal, right? However, if you’re purchasing a multi-family property in need of some TLC and major renovations, consider taking a hard money loan. Unlike banks, hard money lenders know that properties have greater profit after repairs, so they’ll lend based on after-repair value (ARV). That means you’ll receive more money to purchase and fix up a multi-family property.
    Research top-rated investment property loan providers and you’ll be able to quickly purchase your new multi-family rental.

  4. Prepare for Tenants
    This is the most exciting step! After you’ve closed on a multi-family property, it’s time to renovate and prepare for tenants. Here are a few things you can do to get your property tenant-ready:

    • Deep clean the rental
    • Make needed repairs and upgrades
    • Enhance the lighting
    • Eliminate pests and mold growth

All this hard work is worth it once you start filling your rental with multiple tenants. You’ll discover the benefits of wealth generation and multi-family real estate investment, even with all the preparation involved.

3 Reasons Multi-Family Real Estate Investing is Right For You

While multi-family real estate investing is a huge commitment upfront, it significantly pays off down the road. If you want to decide if multi-family properties are right for you, recognize what fits with your lifestyle and determine what your financial goals are. 

Here are 3 reasons multi-family real estate investments could be an ideal option for you:

  1. Higher immediate costs, but it will pay off exponentially. Multi-family real estate could be more than double the price of single-family properties. However, multi-family properties regularly generate a stronger cash flow than single-family rentals. For example, if a tenant moves out of an apartment building you could still have up to 10 other tenants paying the rent, but if a family moves out of a house you can quickly lose that passive income. In the end, multi-family real estate is a low-risk investment, and it allows you to consistently earn extra cash.
  2. Growing your investment portfolio will take less time. If you want to quickly build a large portfolio of rental units, multi-family real estate is the way to go. Instead of buying 30 single-family homes, you can purchase a 30-unit apartment building and immediately place it in your portfolio. Let’s say you chose to invest in 30 single-family homes. That means you’ll be managing 30 separate properties with differing tenants, maintenance needs, and locations. Why not save yourself time and invest in a multi-family building that will help you build an impressive portfolio?
  3. You’ll have the means to hire a property manager. As a real estate investor, you’ll quickly realize how much time it takes to screen tenants, clean rentals, handle finances, and manage your property. Rather than doing it yourself, it makes more sense to hire outside help. While single-family homeowners don’t always have the finances to hire professionals, the income you’ll be making as a multi-family real estate investor more than compensates for property management services. That means more free time and less stress! Who would say no to that? 

If you’re convinced that multi-family real estate investing is the next financial step you want to take, then it’s time to partner with local property managers to get the most bang for your buck. 

Work With a Property Manager to Fill Your Multi-Family Investment With Trusted Tenants

As a multi-family property investor, you know the task list goes on forever. Questions like, “How can I fill that empty apartment building?” or “What do I do if my tenants don’t pay on time?” plague your brain and cause you to lose sleep at night. You’re not only handling a single family but most likely dealing with a variety of tenants on a daily. With the help of an experienced property management team, you can get these questions answered and maximize your multi-family property’s potential. 

Don’t try to figure it out on your own. TrueDoor Property Management offers comprehensive management services to Southern California residents ranging from diligent property marketing to difficult tenant conflicts. When we’re on your side, we ensure your property will thrive. For over 40 years, we’ve helped multi-family real estate investors gain financial freedom and create the life they’ve always wanted. Do you want to get your multi-family property filled within 30 days or less? Contact our local property managers to see what we can do for you!