By: Joe Lawrence
Creating monthly cash flow through multifamily investing is one of the biggest keys to building financial independence. It’s a long term strategy that has been around for ages and the reason for this is because it works well. Building true wealth occurs from investing in assets that produce dividends/income each month and multifamily properties provide just that. Of course, not all investments are created equal, so consider the opportunity before deciding to “jump in”.
When deciding to purchase a rental property, you need to consider if you are buying for cash flow or for appreciation. When buying for appreciation, you are more focused on the equity the property will be building in the future, but the cash flow generated from the asset is less impressive. Whereas with cash flowing properties, the equity growth may be slow; but the cash flow is a lot more impressive. Buying a mix of both, with the focus on cash flow, will provide a balanced investment portfolio. Monthly cash flow creates financial independence and more freedom because you don’t have to work to support your living if your passive income grows large enough.
Most high cash flowing properties are found in towns that have a high population. Generally these are urban areas and preferably the population is increasing in these towns/cities. This shows positive growth and an increasing demand for your product; clean affordable housing. When investing in urban areas it’s important to study the immediate surrounding micro-neighborhood of the area your subject property is located in. For example, you should look at a two block radius and get a “feel” for the neighborhood. Try to avoid areas that have had recent crime and areas that have a lot of vacant properties. Ideally, the only vacant property on the block should be the one that you are looking to invest in.
After selecting and purchasing the property, you’ll need to add value to the property. Ideally this is done through renovating the property and creating an increase in revenue produced by the asset. For example, after fixing up the property, hire a property manager to place qualified tenants in the property to produce a monthly income. You can also consider adding a bedroom to the unit(s) to increase the rent you can collect for that area.
Now that you have added value, you can pull out the equity created by renovating and stabilizing the property. Work with a local bank that knows the area and use that equity to purchase your next property. It’s a lot of work, so consider working with partners or someone who has experience investing in multifamily properties. But after all the work is done, you can sit back and enjoy earning the dividends from your investment. With enough assets, you’ll be able to build a solid retirement portfolio!