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Avoid the Top 10 Multifamily Investment Mistakes – Part Two

June 11, 2011 By
By Dawn Dyer, Dyer Sheehan Group, Inc.

Last month, I highlighted two of the top 10 mistakes made by multifamily investors, and how to avoid them.  We discussed these, as well as other potential property owner pitfalls, at the May session of the Apartment Investor Academy, held in Camarillo.

If you missed it, it’s your lucky day!  Over the next two articles, I will finish the list of the Top 10 Multifamily Investment Mistakes that you can make.  Included below are four more of the most common impediments to success for apartment investors, as well as ways you can help ensure that your properties run smoothly and generate the best possible return on your investment.

3)  Thinking You Can Time the Market

Real estate is not a get-rich-quick scheme.  It is a powerful tool for building financial wealth and security over time.  It is very difficult to time the market well enough to get in and out quickly with large profits.  Buying real estate solely for short-term appreciation is a risky gamble…one that many experienced investors lost on during the recent sudden and dramatic correction in the real estate and mortgage markets.

Multifamily properties should generate an acceptable return on investment, considering realistic income and expense assumptions, including adequate reserves; but don’t expect to retire on the merits of one acquisition.

4)  Dodging Due Diligence

Jumping into a property acquisition without completing sufficient analysis is like flying blind…it’s dangerous.  You must do your homework to understand the property, tenant profile and demand drivers, market dynamics, pipeline of new product, and regional and local economic conditions.

Once you own rental property, it is critical that you complete a thorough check on tenants before leasing to them.  Call former landlords and references.  Run and review credit and criminal background reports through AAGLA.  Also, be sure to check references on contractors, lenders, brokers and other professionals before you engage their services.

5)  Over-paying for Property

You make money when you buy real estate right.  This doesn’t mean fixating on a pre-determined “discount” (as in, “I only make offers at 70% of listing price”).  Careful scrutiny of all aspects of income and expenses and market dynamics is required to really understand the property financials, physical condition, any maintenance issues, and upside potential.  Don’t just rely on the cap rate analysis provided by the seller or listing broker. It may not be based on realistic assumptions.  Do your own analysis, and then make a reasonable offer based on comparable market data.

6)  Lacking Staying Power

Real estate is a business. To succeed over the long term, you must have a business plan that includes adequate reserves for potential challenges, including, but not limited to, spikes in vacancies, falling rents due to unexpected events or disasters, or emergency expenses for repairs or an uninsured liability.  Reserves are needed to protect your investment over time, and to allow for rational versus reactionary decision making.

Tune in next month for more tips to success in multifamily investing!

Dyer Sheehan Group, Inc., is Ventura County’s Apartment Expert. Our professional Brokerage & Real Estate Consulting Services enable Clients to Make Informed Investment & Development Decisions by Identifying Opportunities, Solving Problems & Mitigating Risks.  All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied.  Copyright©2011 Dyer Sheehan Group, Inc.

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Avoid the Top 10 Multifamily Investment Mistakes

May 25, 2011 By

By Dawn Dyer
Dyer Sheehan Group, Inc.

Experts agree that multifamily properties offer great investment potential.  Demographic, economic and other factors will increase demand for apartments over the coming decade.  At the same time, the supply of new units in many areas will continue to be limited, especially in high barrier-to-entry locations like Coastal Southern California, where growth controls and other land-use policies restrict new construction. 

Many think that multifamily investment is a sure way to make a lot of money quickly.  Right?  Not so fast, no investment is a sure thing.  And, despite the hype on late-night infomercials, hitting a home run in real estate isn’t nearly as easy as it may sound.  Real estate investing should never be viewed as a get-rich-quick scheme, but more as a solid path to long-term financial well being.  So, what are the key mistakes that can put your hard-earned equity and dollars at risk, and how can you avoid the most common pitfalls?

1)  Winging It

The most fundamental error an investor can make is winging it. Multifamily investment is a business, and should be approached with a strategic and deliberate plan. Unfortunately, many investors perceive real estate as a transactional or opportunistic endeavor, based on a belief in short-term profits versus careful consideration of their long-term goals within the context of personal priorities, as well as available resources of time and money. 

By taking the time to clarify your investment goals and understand local market dynamics, as well as some basic principals of the multifamily business, you can make well-informed decisions.  Carefully choose acquisitions based on the types of property, tenant profile, and locations that are best suited to your multifamily investment business plan.  Make strategic choices on when to trade-up or sell your buildings; assess the types of improvements that will generate the best returns; and learn how to manage your assets to maximize profit and value.

2)  Getting Emotionally Involved

This may be good for your personal relationships, but it is bad business.  Falling in love with a property can cause you to overlook critical flaws like deferred maintenance or inflated rents.  On the other hand, walking away from a great deal because you are upset, frustrated or angry with the other party in the transaction could cost you a fabulous opportunity.  Establishing a relationship with a qualified, trustworthy multifamily broker will provide you with an important “sounding board” for your decisions, and a necessary buffer in helping complete the transaction if principals become contentious.  Having a carefully planned investment strategy will help you avoid making impulsive or emotionally charged decisions.

We will be discussing the other eight most common investment mistakes at the next Apartment Investor Academy, to be held in Camarillo on the evening of May 11.  The seminar is free, but pre-registration is required.  To reserve your seat, contact Emily@Dyer Sheehan.com or call 805-653-8100 for more information.

Dyer Sheehan Group, Inc., is Ventura County’s Apartment Expert  Our professional Brokerage & Real Estate Consulting Services enable Clients to Make Informed Investment & Development Decisions by Identifying Opportunities, Solving Problems & Mitigating Risks.  All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied.  Copyright©2011 Dyer Sheehan Group, Inc.

Filed Under: Education Tagged With: , ,