Brad Zackson, co-founder and director of development for full-service real estate firm Dynamic Star, believes investing in multi-family real estate can be exciting and lucrative. Unfortunately, some investments are the result of ill-informed decisions. While sometimes a property investment does not pan out for reasons out of one’s control, an investor must always thoroughly research the market and approach property evaluation objectively. Zackson notes that knowing how the property will be managed is also a consequential factor in selecting the right property.
- Study The Market
One of the biggest benefits of investing in multi-family real estate is the promise of reliable cash flow from rental income. While single-family homes have only one tenant or group of tenants, multi-family properties have multiple tenants paying rent. If there’s a vacancy in one unit, you’ll still likely have cash flow from other units. But before investing in multi-family properties, do your due diligence and come up with an investment strategy.
Every city is different, and areas within vary significantly. An investor should narrow their focus and learn as much as possible about the location of a property. In doing so, the investor will know the true value of a property. Additionally, vacancy rates and rental prices will be reflected more accurately. Keeping the research of the market focused will also help avoid surprises. For example, some areas have big-scale future developments, and it’s important to know what impact, if any, they might have on the investment property.
According to Zackson, taking a systematic approach and devising criteria for evaluating properties will help investors make smarter investments. One of the risks for new investors is falling in love with a specific property and overlooking its faults. By applying these criteria to all potential properties, the investor will be positioned to make an objective decision.
- Property Management
The goal of property management is to retain tenants by ensuring the property is always performing up to its potential. According to Zackson, “How a building operates and serves the daily needs of its tenants is one of the most important factors for long-term value creation.” The property manager’s responsibilities typically include setting and collecting rent, handling maintenance requests, filling vacant units and potentially setting the budget for the property. If a rental property is poorly managed, turnover and vacancies will negatively impact cash flow.
There are two options for an investor regarding property management. The first option is that they can manage it themselves, and the second option is to hire a property management company. Knowing who will manage is extremely important because it will have a noticeable impact on the property. If the investor manages the property, they must be well-informed of what is required. If a property management company handles the property, the investor must know how much it will cost. The cost can be significant and decrease the investor’s profit, so it should be calculated when determining future investment income.
The real estate market undoubtedly has hidden gems. In fact, Brad Zackson targets undervalued assets with latent potential for redevelopment to higher and better uses. The path to making a wise investment begins with understanding the market. Once the market is understood thoroughly, the investor should then systematically scrutinize each property. Following these two steps and knowing who will manage the property will result in a worthwhile real estate investment.
Brad Zackson is a veteran in real estate development, finance and management in New York City. He started his career as a broker, becoming the exclusive broker and manager for one of the largest privately held multi-family portfolios, where he managed and supervised over 45,000 residential units.
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