Strategies Used to Uncover Profitable Multifamily Investments

When nearly every market experiences record rent growth and appreciation, it’s easy to find attractive real estate investments. However, as rent rates fall and property values stall, success will require having the right systems to identify and uncover those that will continue to be profitable for investors.

Individuals purchasing a family home tend to focus on up-and-coming neighborhoods. Investors, on the other hand, view location through a broader lens. Here are a few elements to consider when deciding where to buy a commercial multifamily property:

Buying in States with Landlord-Friendly Laws

State laws impact both the purchase and operations of multifamily complexes. City councils have control over some policies, but most governing laws occur at the state level. Landlord-friendly states tend to have the following benefits:

  1. Laws reduce the time and cost involved in evicting a tenant who violates the lease agreement.
  2. Rely primarily on supply and demand to set rent rates rather than government regulations. Limited or no rent control requirements.
  3. Security deposit rules are left to property owners with limited restrictions on the amount the landlord can collect upfront and how the funds can be used.
  4. The ability to require tenants to take on some maintenance and repair needs.
  5. Lease agreements with fewer restrictions give landlords more flexibility with lease terms.

Buying Properties Located in the South or Southeastern US

The South and Southeastern US have higher net migration than other areas of the country. Population growth leads to a number of economic factors that could improve profits:

  1. Higher demand: In high-growth areas, new construction tends to lag behind demand, creating more need for housing and driving up occupancy rates.
  2. The lower cost of living in the southeast makes it affordable for people to live and work.
  3. Strong job market: Affordability attracts families and businesses, creating a solid job market in many regions.
  4. Rising rental rates: Higher demand for rentals drives up rent rates, providing more potential for rental income growth.
  5. Positive economic indicators: The southeast continues to have positive economic indicators such as low unemployment rates, rising income levels, and strong GDP growth, providing a stable market for real estate investment.

How Location Impacts Profitability

The location of a property is the primary driver of profitability. It determines the rent you can charge as well as the appreciation achieved. The place also impacts the following:

  1. Rent rates: Properties in high-demand areas can sustain current rates and tend to see higher annual increases.
  2. Access to amenities: Location determines the proximity to transportation, greenways, shopping, and other amenities tenants find valuable and can command higher rents and attract more tenants.
  3. Occupancy rates are directly impacted by location. Buildings in areas with low crime, good schools, and recreational activities have higher occupancy.
  4. Appreciation: Location determines how much the property is worth and affects the appreciation rate. High-growth regions might experience above-average appreciation even if others are suffering market declines.
  5. Competition drives up the rent as long as demand exceeds supply. New construction also factors in because if the market becomes saturated, it can cause rent rates to fall.

At McKee Capital Group, we understand the criteria that make an excellent multifamily investment, and we have systems in place to minimize and mitigate risk. Not just for today but for the duration of ownership.

To learn more about how we invest in real estate syndications through McKee Capital Group, watch our introductory video.

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