Common Misconceptions About Investing In Multifamily Apartments
Multifamily has historically been a popular alternative investment vehicle for decades. The wealthy have long known the benefits of investing in multifamily apartments and the generational impact that it can have on wealth building and preservation.
Unfortunately, many misconceptions have prevented the average person from enjoying these same benefits, as real estate investing (especially commercial assets like multifamily buildings) seem out of reach. There is a lot of talk and publicity about investing in the stock market but alternative investments, relative to stocks, are not as frequently publicized. So not only is there a perceived lack of access to these investments but there is also a gap in knowledge about opportunities to invest in real estate.
These misconceptions may be the same ones stopping you and others you know from potentially experiencing and enjoying the life changing benefits that come from successfully investing in real estate.
In this article we will clarify some of these common misconceptions.
It cost too much! You need to be extremely wealthy to buy a large multifamily building
For many people, their real estate experience and understanding is only limited to the purchase of a single-family home as a primary residence.
The purchase of a single-family home is often one of the largest purchases a person makes in their life and requires a significant sum of money. It is understandable that someone may think “how can I afford a multifamily apartment investment, if I could barely by my single-family home?”
The idea that it costs too much to invest in a multifamily apartment is largely based on the fact that people assume you have to do it yourself. The reality is that via syndications (a form of investing with a group of partners) you may actually be able to invest in a multifamily apartment for a fraction of what it would cost you to buy a single-family home. Additionally, when purchasing a multifamily apartment, you would get each unit at a cheaper price than the single-family home. You can think of buying a multifamily building similar to buying wholesale.
Real Estate always goes up!
Real estate always goes up they say. Is that really true? Well, yes and no. We can get into an overly brainy conversation about real price growth adjusted for inflation and nominal price growth not adjusted for inflation but that’s beyond the scope of what we are discussing here. What many people are often referring to when they say this is the sales price.
The reality is that in the long run, like most investments, real estate does always go up. This does not however mean that it will always go up for you in the short term. The real estate market moves in market cycles of expansions and contractions. The profitability of a real estate investment is not solely based on the market itself but also the investment strategy and the individuals who are managing the investment. This truth applies with all types of investments.
A popular quote amongst real estate investors is that “you make money when you buy.” While this could mean several things, one of the main meanings is that a good investment is made based on the terms obtained when you make the initial purchase. If the investment was purchased at the right price, with the right financing, in the right market etc. that can overcome many of the issues faced during the life of the investment.
You need a lot of experience and knowledge about construction to get started
You don’t need any experience to get started investing whether as an active investor or a passive investor.
To start investing you have to start.
Many people hide behind the excuse of lack of experience and knowledge as a means to explain why they take no action. This may look like someone doing nothing or on the other end of the spectrum, consuming volumes of information but never actually using what they have learned.
Via investing in multifamily apartment syndications, you do not need to know it all. You gain the benefit of investing with a deal sponsor who already has knowledge and a network to successfully complete a real estate investment. Additionally, you can join an investment club where you will be surrounded by other more experienced investors who can provide opinions, guidance, and mentorship to fast track your investment journey. While it is important to take time to understand investing in general and real estate specifically, this should never become an excuse for inaction.
Deal sponsors will have an easy time finding money if they have a good deal
This myth is directed primarily to active investors. It is very popular amongst new investors to spout the idea that if you have a good deal, it will be easy to raise the money.
There should be an asterisk on this statement.
If you are a new investor, with no network, no one even knows you do real estate investing and you need to close the deal in 30 days? Good luck!
You will find it very difficult to raise capital for that deal. This is a huge misconception that costs investors lots of money (ironically). Money may become easier to raise once you have done the work upfront to build connections with capital providers, whether they are passive investors or other active investors that can raise capital. This groundwork needs to be in place for you to have a source of capital when it comes time to purchase a new multifamily apartment investment.
Some common misconceptions about investing in multifamily apartments are:
It cost too much! You need to be extremely wealthy to buy a large multifamily building.
Real Estate Always Goes Up!
You need a lot of experience and knowledge about construction to get started.
Deal sponsors will have an easy time finding money if they have a good deal.
As we have seen, these ideas are not always as simple as they seem. Investing in multifamily apartments can often prove to be an easier, more accessible, and profitable investment than you may realize.
Interested in learning more about investing in multifamily apartments? Give us a call or check out some of the other free resources we have available at Investupmultifamily.com.