There are plenty of investors who are really excited about multifamily as an investment — until discussion drifts toward geography and where the multifamily investments are located. For some very interesting reasons, investors get hung up on where their investments physically live. We’ll work through how long distance multifamily investing can be done right.
Before we get to how to get this done, let’s look back at some of the issues.
The biggest roadblock to investing out of state for most investors is not being physically close to the asset. The reasoning is that they want to be a short drive away so they can check on their investment.
This idea of wanting to be within a short drive of an investment asset is likely leftover from the days of single-family investing and the self-management of these investments. In the case of self-management, it is imperative that the owner be physically close. They need to manage tenants, collect rents and handle maintenance problems among other operational tasks. A plane ride away and lack of attention from these self-managed assets would naturally mean financial deterioration of the asset over time.
To a lesser extent, we hear that investors are not familiar with a particular state or city and would therefore be uncomfortable investing. This lack of familiarity is relatively easy to overcome with a little bit of investigation of the proposed location.
To successfully invest outside of your home state, some ideas may need to change and new processes implemented. The first thing to know and understand is that many, many investors successfully invest out-of-state. This is true whether you are considering single-family, multifamily, or any other commercial real estate asset class.
Here are some other tips for long distance multifamily investing like a pro:
1. Turn your concept of owner/operator on its head.
We touched on this earlier, but migrating the self-managed model to long distance multifamily investing will not work. While it would be nice to have assets run themselves or have every opportunity land on your doorstep, neither of those possibilities is terribly likely.
Accepting third party management for your multifamily assets is not only a solid idea for managing out-of-state investments, but also a good idea for financially optimizing your assets.
2. Utilize the investment cycle more productively.
Where you live in the world moves in economic cycles, just like everywhere else in the world. To expect that your particular corner of the world will be on a continuous economic uptrend is not a realistic approach.
Where you live will naturally go through periods of uptrend. These periods will not last forever. To avoid long periods of investment dormancy, looking elsewhere will help keep your investments active.
3. Select a stellar property management team.
This is good advice whether you are acting as a single owner, or if you are participating as a passive investor with an operator like Waypoint Property Group.
Having a property management team that has a lot of experience managing multifamily assets like yours is the key to a financially stable investment. This item is super critical. Waypoint Property Group will not invest unless the property management team is in place and ready to go.
4. Don’t skimp on property management fees.
It’s quite natural as an investor to want to minimize your expenses to make the investment financially perform even better. Property management fees make up a fair percentage of the expense bucket for multifamily assets and are a natural target for reduction.
At Waypoint Property Group, we like to think of property management fees as being directly linked to our revenue receipts. The more cutting we do on the property management side of the house, the less likely we’ll see any motivation by the property managers to financially push the asset. That situation is bad for your investment.
5. Reporting is key.
Just because you have an outstanding management team doesn’t mean you shouldn’t pay attention to your asset. Reporting is key.
Some reports to consider routinely are:
- potential tenant traffic
- new tenant sign-ups
- tenant move-out notices
- rents received
- late rents
- vacant unit stats
- calls for maintenance
- maintenance response times
- particular maintenance items
This list is only a sampling of the kinds of reports that will help you keep an eye on your multifamily project. Not all of these reports are generated at the same time or the same frequency. Your asset manager will fine tune these over time so that you have a realistic picture of what is happening.
6. Plan to visit.
Much like reporting, just because you have chosen to get involved with long distance multifamily investing and are not physically close to your asset doesn’t mean that you should not visit. Visits should be scheduled to be both planned and unplanned.
Our investors Waypoint Property Group are always welcome to visit their assets, walk the grounds and even talk to their property managers. Whether you are a solo operator or a passive investor, this open door function should be the expectation.
Tags: apartment investing, investment performance, long distance, Multifamily investing, out of state, professional management, self-managed, third party management
These are just a handful of ideas and processes that should aid in your decision to get into long distance multifamily investing. As with any investment, there are pros and cons to weigh and consider before you move forward. We hope this blog helps to open up the possibility of investing outside of your immediate locale, whether that is done as a solo investment or as a passive investor with a firm like ours.