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Popular Multifamily Real Estate Investing Strategies

Real estate offers numerous ways to invest in it, and multifamily commercial real estate is no different. You can invest in small multifamily properties that are five units or more. Some may want to invest in a large multifamily newly built from the ground up. Others prefer stabilized apartment buildings that need little to no updating, syndications, or funds as a general partner (GP) or limited partner (LP). Finally, you may invest in a multifamily real estate that’s already generating cash flow or a property that takes years to produce positive returns.

However you invest in multifamily, or any investment, for that matter, depends on your time horizon and the level of risk you’re willing to take. Risk and time horizon are personal to each investor, leading to how they approach multifamily real estate investment opportunities.

There are three main strategies for investing in multifamily real estate that you must consider. First, you can either buy and hold or fix and flip. Each has pros and cons; you must know upfront what is planned for the property to better predict the outcome one intends to achieve.

Buy and Hold: This one is pretty easy, and as the name implies, you buy the property, and then you hold the asset over an extended period of time. This strategy can be used if you purchase the asset yourself, in a joint venture partnership, or syndication with other investors. When you buy and hold, you can make improvements to the property, but it’s not required. The key difference with a buy-and-hold investment is that the investor or investors intend to retain the property for multiple years. While the property is being held, investors receive dividends based on the property’s cash flow. Most buy-and-hold investors also expect the property to appreciate during their buy-and-hold period by a certain amount. In addition, certain tax benefits are associated with buy-and-hold real estate investing and, notably, the proceeds. When you sell real estate that’s been held for a long time, the gains you receive from appreciation will be subject to long-term capital gains tax. This rate is much lower than the short-term capital gains tax you generally see when flipping properties that are held for less than a year.

Fix and Flip: The strategy in the list is fix and flip. When an investor uses this strategy their looking to force appreciation in a property in a very compressed amount of time. This approach seeks to get in and out of the real estate investment within months of its purchase. The investors’ strategy is to purchase the property below market and then make light or significant improvements. Light improvements may include:

  • Painting the outside of the building.
  • Painting inside the units.
  • New landscaping.

Significant improvements can include: 

  • Heavy renovations and upgrades to units like new kitchens and bathrooms. 
  • Adding washer and dryer hookups.
  • Replacing old roofs
  • Repaving the parking areas, and more. 

Fix-and-flips are a great way to make quick profits, especially when riding the wave of a seller’s market. 

Value Add: Value-add investing is another strategy used when investing in multifamily real estate. This is when an investor or group of investors purchase multifamily real estate that has the opportunity of making upgrades which could be a little or a lot. The value-add strategy considers that there is room for forced appreciation and revenue growth after improvements are made. Similar to a fix-and-flip adding value to the property could mean light or heavy value-add. You may find yourself adding fresh paint and appliances to units or significantly improving the building exterior, landscaping, and common areas. Adding new amenities to a property, like a dog park or extra storage, is another way to add value. Heavy value-add can be challenging to execute, so only more experienced and motivated teams should undertake them. In general, value-add real estate investing can be highly lucrative when the business plan is executed well.

It’s important to know which strategy to use or what others will use when investing in multifamily real estate as a limited partner. The investment approach should be evident in the business plan, whether it’s a buy-and-hold, fix-and-flip, or value-add. RE-Ignite Capital invests in multifamily real estate and works with investors who take advantage of these opportunities to achieve outstanding returns. Schedule a call today if you’d like to learn more about how this process works.