People interested in diversifying their portfolio and investing in real estate may ask “how can I invest in multifamily real estate?” It seems like it should be as easy as finding a property, doing a little leg work, and then making an offer – but as we’ve learned from BAM founder and CEO, Ivan Barratt, there’s a lot more to it than that…
Reasons it’s Great to Invest in Multifamily Real Estate
You’ll gain from what Ivan calls economies of scale. The more units, the larger the deal, the more you benefit – such as having on-site management and staff. If one person moves out, you’re not suddenly scrambling because you aren’t dependent on one resident.
The economy has shown us time and again that it enjoys ups and downs; however, the need for safe, quality rental communities is basically recession-proof. In fact, during the Great Recession, more people than ever turned to renting when the housing bubble burst.
You’ll also receive the benefit of less risk. Unlike stocks and bonds which are speculating on what’s going up, real estate is an income producing asset with less risk. In fact, as Ivan has mentioned before, his job is to actually worry less about maximizing return and worry more about minimizing risk. (Check out this great article about how that risk and return works out.)
How to Invest in Multifamily Real Estate
As Ivan said recently in an article he wrote, while there are some people who are definitely cut out to become operators, the majority should stick with finding an operator like Ivan and letting him do the hard work involved. It has taken tens of thousands of hours for Ivan to reach this point in his career, and that’s with real estate as his only career. Many investors already have a pretty demanding “day job” which has brought them success: and with multifamily investing as a full-time job, taking on a second job isn’t ideal.
That being said, for those who want to get into the business, Ivan has plenty of advice. He advises making small changes every day and committing to the hard work and sacrifice it takes. Here’s a list of Ivan’s recommended reading list to get you started! Also check out this article of his advice on how to succeed.
How BAM Does It
At this point in the cycle, BAM looks at around 200 deals to find that one that is a good opportunity. In other words, don’t expect to go out and strike it rich on your first try. Be prepared to fail and learn from those mistakes. Ivan calls that “paying tuition,” and it costs real money to learn those lessons.
Right now in the cycle, we’re looking at B+ and A/A- assets, where we can add some light value add, but that won’t require heavy renovations – typically built 1995 or newer. The strategy is to buy nicer, newer assets that we don’t mind holding for ten years if we have to, even though we might rather sell or recapitalize in year five. In that time frame, if the economy tanks, we’ll have good residents living in a higher-quality asset that we don’t mind owning for the long term.