Growing Wealth with Multifamily Investments

An expert at Marcus & Millichap discusses leveling up from single-digit to 1,000-plus units and the pathway to profit.

Successful apartment owners have a few things in common.

When it comes to growing your multifamily portfolio, it boils down to efficiencies, economies of scale and a solid team. From one to a 100 is a piece of cake: Four 24-unit buildings and you’re 96 percent there. It’s an achievable four-year goal that should net a quarter million per year.

Imagine for a moment that you were collecting on average $900 per month from 7,000 families in exchange for quality affordable housing. At a recent closing, a client explained how he purchased his first nine-unit apartment building 10 years ago, and today owns and operates more than 7,000 units. That story is not an anomaly, it’s a reoccurring theme that I hear over and over from successful apartment owners. The fascinating part about successful apartment owners is that most of these millionaires did not start out rich.

Stages of investment

Apartment owners go through a few stages in their investment careers: wealth creation, wealth preservation and finally legacy. It typically starts with wealth creation, where the apartment owner is willing to take a little bit more of a “headache” to achieve higher returns. If you own apartments you can tell me a thing or two about headaches.

Time to reap, time to harvest. Successful apartment owners level up in opportune times by selling when the market is frothy—like it is today—and trade up to higher-quality assets. In the wealth-preservation stage the investor will sacrifice a little cash flow for fewer moving parts. What good is cash flow if you don’t have time to enjoy your life and spend time with loved ones? Some investors will trade smaller assets for larger ones and remove outliers from their portfolio for lower cap rate sub markets that may be less management intensive. Other owners do what I call a makeover; here they trade an entire portfolio and go national.

We all want to leave a solid legacy and a steady stream of income for our future generations. In this state, some of my clients change asset classes and purchase fewer management-intensive investments. With a triple-net property, there is no landlord responsibility and you get the option of selecting your resident from some of the most solid regional or national companies. A client recently traded an apartment deal for a publicly traded company with a new 25-year lease. When you consider the options to renew incorporated into the lease, his family may very well be collecting those payments 75 years from now.

Every investment opportunity has burdens and benefits. A-team apartment brokers help owners make informed decisions about acquisitions and dispositions. These brokers are a necessity in today’s dynamic market place. It takes a top-notch team to sift  through the white noise and uncover the pathway to profit.

Anthony Hardy is a senior associate at Marcus & Millichap with 20 years of experience helping clients create and preserve wealth through the timely acquisition and disposition of multifamily properties.