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.