3 Risks of Investing in Multifamily Real Estate
Multi-family real estate can be a great asset class to add diversification to your strategy and stability during economic downturns. However, as all investments go, there are a few types of risk you need to consider.
Investors can’t control the market, interest rates, inflation, or the economy. However, certain multi-family real estate classes (like Class B) are better able to withstand both common market shifts and the major corrections.
In terms of the geographic market, take note of where population & jobs are growing and where it’s decreasing. Nationally speaking, the southeastern parts of the U.S. are experiencing an increase in population, due to a warmer climate, and strong job growth as well.
The financial markets play a significant effect on investments. It is important to know if cap rates are expected to increase and property values decline? What is the NOI growth going to be? Interest rates going up or down? How does all of this and the overall global economy affect the confidence of investors and in turn the demand on the investment class?
These are all important questions to ask in evaluating the market conditions.
This risk is concerned with the actual property itself. Price, condition of the property, structural and code issues, utility issues, even crime in and around where the property is located are all important factors that should not be ignored. And, don’t overlook rents and expenses. Even if it’s a desirable asset, if the price is too high, the risk is much higher.
“Do not get emotionally attached to a deal, because paying more is not winning,” says Don Wenner, CEO of DLP Capital Partners. “If the deal doesn’t work at that price then the deal doesn’t work or the price needs to negotiated or you walk away.”
Who is managing the property you’re investing in? Is it you or a fund manager? If you call the shots, be honest with yourself about what’s involved in order to be successful. Do you have the expertise, knowledge, time, and capital or will you fall short? If you’re investing with a fund manager or investment company, do they encompass those factors? Are they honest and transparent? Do your homework to avoid unnecessary surprises.
Learn How We Mitigate the Risks of Investing in Multifamily Real Estate
Join our live webinar on December 13th and learn the extensive process DLP Capital Partners goes through to mitigate and virtually eliminate risk factors for each and every multifamily asset we acquire and manage. Click the button below to register!