Realty411 Magazine The Future of Real Estate is Here | Page 67
•Loans are generally more difficult to
obtain
•Loan terms are not as good
•Price per unit is higher
•Banks prefer local borrowers
•Properties are generally older
•The economics cannot justify full-time, on
site management and maintenance
And, it is usually difficult to manage
effectively. Stories of offsite management
showing up after a week or two at small
multifams only to discover that drug deal-
ers have run off decent tenants are common
stories. Also, a single vacancy in a small
mulitfam has a greater percentage impact
on cash flow than in a larger investment.
Again, one valuable way to mitigate these
factors is to purchase a larger product with
partners through syndication.
Due diligence is much more critical than
with single-family rentals but there are also
more resources available to get a lot of the
general information because there are a lot
of marketing firms that support the REIT
and institutional investors who mostly
purchase large multifamily and commercial
properties.
A multifamily seller’s proforma (projec-
tions of the potential income and expenses
in a perfect world) should for the most
part be disregarded. True expenses are
seldom less than 50-60% of gross income,
otherwise be suspect. And study local de-
mographics carefully. Visit the prospective
property unannounced, walk it, and then
sit in your vehicle to observe who is living
on and visiting the property. Take note of
the time of day and night. Yes, evening
observations are the most enlightening. Go
to the local schools, parks, and retail stores
and see whom your prospective tenants and
demographics are.
Do you feel at risk parked so near your
potential property, or would you feel com-
fortable joining the tenants for a barbeque?
Please do not rely on website data about the
neighborhood. There are a lot of variances
in a one-mile radius. Lastly, my post data
analysis is always punctuated with the sat-
ellite view question: Would I be comfort-
able with my daughter living here?
In addition to syndications an alternate
way to have many of the benefits of a mul-
tifam with less money down, an achievable
loan, and much less risk is with a portfolio
of single-family properties. Throughout
my investment career, I have always also
owned many 1-4s.
This approach spreads your risks by
building a “mutual fund” of properties in
various locations. In addition to having a
variation of rent, price appreciations, and
occupancies that tend to converge on the
averages for a region, single-family homes
are more liquid, have less expenses, are less
complex to manage, and tend to appreciate
more because they are based on owner
occupant demand rather than on income. In
the next decade, most economists project
a higher upward trend in occupancies
and rent for single-family homes and for
multifams.
The most important ingredient is to se-
lect that right team of professional resourc-
es. How much experience and knowledge
do they have in the region and product of
interest? Are they invested in the products
themselves? If you are considering partner-
ing to own multifamily properties, do they
have experience with syndications and ac-
cess to experienced and qualified investors,
lenders and property management?
When you invest in real estate, don’t
start with the “deal.” An honest assessment
of the amount you have available to invest,
your risk tolerance, your experience, and
your long-term goals, along with the right
professional team, will lead you to the right
deal or deals: A multifamily investment or
a portfolio of cash-flowing single-family
properties? I choose both.
Tom Wilson is a 37-year real estate veteran
who has executed over $100M and 2000
units of real estate investments. Wilson is
also a weekly host of the Real Estate 360
Radio program on KDOW 1220 am every
Wednesday at 2 pm. Listen to his podcasts
on iTunes or his website:
www.tomwilsonproperties.com
INVEST
WITH
CONFIDENCE
INVEST WITH CONFIDENCE
I M M E D I AT E C A S H F LOW
I M M E D I AT E C A S H F LOW
D
D
Typical Property
Price $139,000
Rent $1,395
Year Built
2001
Price: $110,000,
fully renovated,
built 2005
Currently Rented
4 Bed for
2.5 $1,195
Baths
e: $110,000, fully renovated, built 2005
ently Rented for $1,195
Mention
Voice Magazine
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Realty411Guide.com
PAGE 67 • 2014
property
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“Contact me for a
“Contact
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free
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analysis.”
free cash flow
analysis.”
TOM WILSON, President
408-867-1867
TOM WILSON, Presiden
[email protected]
TomWilsonProperties.com
408-867-1867
reWEALTHmag.com
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TomWilsonProperties.com