How to spot an excellent multifamily investment opportunity?
Among the array of commercial real estate asset classes, multifamily properties have always been deemed less volatile as it is less exposed to market cycles. After all, everyone needs a place to live. Risk averse investors tend to stick with multifamily assets. Multifamily properties are in themselves already pretty stable investments.

**But what are the things you need to consider when buying a good investment property?**

* **Location**  
Where is the property located. What kind of area is your property located, how accessible it is from hospitals, groceries, schools and such. Where you buy your property dictates its market value, will impact its resell value, and your ROI. In scouting good locations consider following migration trends, the area’s exposure to the pandemic, unemployment rate, avoid the area if it has traditionally high unemployment rate, weigh wage and cost of living is the area, activities in the area, are there giant companies? Check if the area have diversified industry.
* **Follow the money**  
This means you have to follow the jobs. Keep track of what’s being built, taken down, and repurposed. It’s important to note the presence of (or potential presence) of certain companies such as Apple, Amazon, Whole Foods, Tesla, and the like, as they have the power to offer jobs and reshape a community’s economy. Track these developments as they provide good opportunities to gauge a location’s growth prospect.
* **Your Budget** \- How much can you afford? Don’t get too excited about low mortgage rates and depressed property prices. Every investment entails risk but there’s a line you have to draw. You have to have a clear plan on how to sustain your cashflows for the next two to three years.  
\* *How long can you afford to hold the property?*  
\* *Can you afford the renovations/redecorations needed OR necessary to increase its value?*  
\* *What if tenants move out or are unable to pay rent? Can you withstand the lower cashflows, and for how long?*  
 **You should have a clear plan on how to sustain your cashflows for the next two to three years. So, be smart, be prepared, and budget well.** 
* **Valuation of the property**  
This is important for financing, it allows you to **unveil actual price of the property as well as the potential risk**, financial performance, property valuation, comparable transactions, local market overview including rental landscape, demographics, business statistics, top employers, and tons of other information about the local market and area change. This will guide you if the property is good for you or not.  
Looking at a property’s potential is a good way to spot deals in real estate. You must be forward-thinking when looking at properties and scouting good locations. Don’t just look at what it is, look at what it could be, and the best use case for the property.
* **Take Note of Laws and Regulations to Determine Investment Viability**  
Real estate doesn't exist in a vacuum. Study up on the rules and regulations that govern commercial real estate. Consider caps on taxes, rent control, property development fees, and new COVID related regulations, to name a few.
* **Determine Your Risk Appetite**  
What Asset Class and Where to Invest. Knowing your risk appetite determines the kind of real estate you’re going to go after and where. What type of investor are you? Risk Taker on the hunt for bargain deals or Risk Averse who go after safety and security?  
Risk Takers-Hunt for low priced properties then sell it high. Look for properties in good locations   
being sold at bargain prices. A good tip is to also look at places that are selling for cheap but you can fix up and make better. Class C real estate are usually less expensive and can be renovated to yield higher rent payments once all the alterations are done. If done right, a renovated Class C property can become a Class B asset, and if located in an area primed for growth or recovery once the economy starts to revive, then the returns have the potential to be astronomical.  
Risk Averse Investors - Go for Safety and Security, so they tend to stick with multifamily asset classes marked as A or B – but Class A assets are usually the best bet in terms of solid dependability.

Bottom line - do your due diligence when investing, don’t stick to only one source, look for different factors that might affect your profit in the future.
[{"id": "gule7uw", "text": "Multi family is EXTREMELY over valued right now. Trading in the 4\u2019s is nuts.", "replies": [{"id": "gum8lho", "text": "I agree that valuations are at an all time high, but what needs to happen for cap rates to widen? I think people are looking at the performance of properties in peak covid and saying this asset class is even more solid than we already thought. \n\nFeels like until you have a lot of oversupply which is of course MSA dependent or rates are high enough to kill acquisitions, it\u2019s not going anywhere...\n\nDoesn\u2019t help that banks, debt funds, agencies, life cos are providing very solid financing terms. \n\nAnd finally the most important question, are you from Daytona ?", "replies": [{"id": "gun76d7", "text": "Lol - let\u2019s get to the important part first; no. User name ties to my first motorcycle.\n\n\nThe reasons MF is trading in the 4\u2019s are varied but share common themes:\n\nStability\nSupply\nAvailability of financing\nFinancing terms\nDebt service and ability to grow NOI via rent increases\n\nStability : in a world where retail on the coasts got kicked in the teeth MF looks like a solid safe haven.\n\nSupply: MF supply is at all time shortage compared to demand. Housing costs have gone through the roof due to low supply (part covid part cheap money) and now you have several markets looking like bubbles. MF housing supply has always lagged behind true demand and as such are seeing historical occupancy\u2019s in the 90\u2019s for well managed properties.\n\nAvailability of financing: who doesn\u2019t want to finance multifamily right now? I can\u2019t scroll my CRE feeds without getting hit by 10 adds for equity or debt side participation in MF deals. Add in lifco and institutional investors and there is a glut of money going into that sector.\n\nTerms: with so many options for financing terms have gotten super favorable.\n\nDebt service and upside: so good terms plus lots of equity partners means debt service is easy - upside goes to those rent increases due to demand.\n\nSo I see MF as a hot play right now even more so from the development side (dm me if you have questions) - even in secondary markets or places you may not see big class A properties.\n\nMy second best play would be internet resistant mini strips in those same secondary markets that didn\u2019t shut down.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gulhyve", "text": "We are starting to build 51 townhouses. Market research is telling us that even with the cost of materials, these will go quickly and help the town with their need for housing.", "replies": [], "depth": 1}, {"id": "gulmm5z", "text": "How to spot an excellent multifamily investment? Model it in a real Excel financial model and see what the returns are going to be and how much capital you need to invest.  All of the factors above go into the model but those other factors (risk) need to be compared to the returns (reward) to see if it makes sense", "replies": [{"id": "gun79t8", "text": "This is a gross oversimplification.\n\nI could have a project with phenomenal theoretical returns but if it\u2019s in a shit location or a market that\u2019s on the precipice of tanking then that\u2019s all useless isn\u2019t it?\n\nNumbers are just a checkbox. There\u2019s so much more to it.\n\nSigned,\n\nA finance guy working in acquisitions/development.", "replies": [{"id": "guokfy4", "text": "If it\u2019s in a shit location or in a market on the precipice of tanking, then your model should increase general vacancy, slow down leasing, assume higher TIs, etc.\n\nSigned,\nA finance guy who runs a $1 billion private equity fund", "replies": [{"id": "guoll7n", "text": "Uh... sure... but those are assumptions? A deal is 99.9% of the time not going to pan out the way you underwrite it.\n\nMy point is, I can underwrite tons of deals that are going to theoretically absolutely print money, but those return metrics aren\u2019t all there is to it.\n\nFor example, we just passed on a land deal that would have given us as of right zoning for 1-2M BSF of multifamily. Market conditions are currently excellent, no sign of slowing down. Location was great. First phase was underwritten at a 25% IRR.\n\nWhy didn\u2019t we do it? We didn\u2019t like the market. Not because of supply/demand issues, market rents, or any other factors. The issue was there was a highly aggressive local developer there with a similar competing parcel and we were concerned it would turn into a race to market. That\u2019s something a spreadsheet could never tell us.\n\nThere are a million factors you need to consider beyond \u201cdoes this deal pencil?\u201d in order to spot an EXCELLENT multifamily investment.\n\nEDIT: Just to be clear, I don\u2019t think we disagree with each other here. I just think that saying it\u2019s all about the numbers is just patently untrue - the numbers are a checkbox that need to be taken in combination with many qualitative factors, not all of which have a direct impact on the underwriting, but many of which can kill an otherwise great deal.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]