Investing Small: Is It Really Worth It?

For many investors who have yet to dive into multifamily syndication, investing small provides a whole range of benefits. It’s true that acquiring a large number of apartment units is profitable, but smaller units can also generate a good cash flow. In a way, acquiring a large number of apartment units (say 200) is very much comparable to starting small with 50 (or even 10) units.

The reasons for this is that there’s less competition when you are investing small. This is because you are at a level playing field. You are competing with investors who are at the same spending range as you are. For this to work out well, it’s important to search for small multifamily properties that promise a high rate of return.

So, in a way, you still have the choice of entering the multifamily market as a single investor. However, you will have to face several challenges before you can finally have your own inventory of apartments.

Now, this is the part where it gets rather complicated. For most investors, there’s no predicting the path the market is going to take. But for me, the most critical challenge would be the acquisition of multifamily properties when the trend is gradually shifting towards secondary markets. That and uncertain demands in construction have made it difficult for investors to take the first step.

Nonetheless, investing small in multifamily properties is still a viable option when you are aiming to enhance your cash flow. You only need to leverage what you already know to find profitable opportunities.

You can also use my tips when you decide on acquiring multifamily properties between 10 to 50 units:

1. Know where to invest

Location is always important when your main focus is to find properties that offer the highest yields. While you can’t always determine whether or not a city such as Miami or Columbus is performing well, you can still acquire a helpful illustration of local markets. Some markets are overheated or, as we say, the market is at its peak. Yes, that’s true, but I totally believe that it’s still possible to find the best opportunities out there. You just need to work a little harder and stay in the market to catch the fruit!

As always, I would point out that research is vital. If you are a syndicator, you ought to lay your eyes on emerging markets. Look at the figures representing job growth, employability of the population, and purchasing power. If these indicators are in the high, then you might as well move in to acquire properties in these areas.

How about for single investors? Well, you can still conduct research on your own, but it still helps if you already foster a network of property managers, realtors, and brokers who can fill you in on what markets are “hot” right now.

2. Get the details

Once you already know where to invest, you can then focus on getting the required information on the units you opt to purchase.

Of course, this stage comes before the purchase itself, so extra care has to be taken when you are analyzing your expenses and coming up with a figure you can work with. Details such as the listing prices of the units as well as the median property value in the community are important bits of information you wouldn’t want to overlook.

After that, you can proceed to analyze your total finances. Include calculations for monthly maintenance costs and compare these with your monthly cash flows. Once you have added up all the important numbers and see a positive outlook in your cash flow, you now have a good reason to invest in the properties. The two categories of expenses that affect a purchase are the higher Tax Expenses at a new high purchase price, payroll expenses and the deferred Maintenance Capital Expenditures in your calculations.

3. Pool your resources

Your choice of financing is crucial. It takes a lot of careful consideration to find a loan that enables you to maximize your investment and, more importantly, your cash flow. Being where the market is, and with the prospect of increasing interest rates, it’s advisable to get 10 to12-year term loans with assumable clauses.

However, one disadvantage with this is that you as a single investor will be shouldering the finances on your own. This would mean handling the necessary paperwork and all other processes that lead up to a closing. This wouldn’t be a problem if you happen to have substantial resources to pull your investment together. Partnering with a high net worth family member or business partner can help in acquiring larger size multifamily assets.

Going solo is still a worthwhile thing to do in a multifamily market. Still, if you are aiming to get higher yields, you might as well form a syndication with equity investors to increase acquisitions and, more importantly, secure a steady cash flow. That’s the world I have lived in for the last 12 years.

Read more about making it big as a syndication investor from my other blogs! Keep focus and taking daily steps to crush it big; perseverance and positive attitude pays off big.