In this article, we'll answer the following questions to help you understand multifamily real estate investing and how to best use LoopNet to find properties fast. The topics below are:
- What is a multifamily property?
- Why invest in multifamily properties as a commercial real estate investment?
- Where can I find multifamily properties for commercial real estate investing?
- What are some online marketplaces to consider?
- How do I find multifamily properties on LoopNet?
- Where does LoopNet show key metrics for a multifamily property?
- CREBake helps you find multifamily property investments on LoopNet faster
What is a multifamily property?
A multifamily property is commercial real estate that includes multiple units within a single building or complex. These units can be rented out to multiple tenants and are often used as an investment. Examples of multifamily properties include apartment buildings, duplexes, triplexes, and fourplexes.
The units within a multifamily property can be rented out long-term, with tenants signing leases for a set period or on a short-term basis, such as through a vacation rental. The owners of multifamily properties may manage the units themselves or hire a property management company to handle day-to-day operations and tenant management.
Why invest in multifamily properties as a commercial real estate investment?
Multifamily properties can offer several advantages as commercial real estate investments.
- They can generate a steady stream of rental income and the potential for appreciation in value over time.
- They also can provide a greater degree of diversification than investing in a single-family property, as the revenue stream is not dependent on the performance of one unit.
- Also, in some places, multifamily properties can be a way to afford housing for people who otherwise would not be able to buy a single-family property.
Where can I find multifamily properties for commercial real estate investing?
There are many ways to find multifamily properties to buy as a commercial real estate investment. Some common methods include:
- Real estate agents: Real estate agents who specialize in investment properties can help you find multifamily properties that meet your needs. They can provide access to a wide range of listings and assist you with buying.
- Online marketplaces: Several online marketplaces specialize in selling investment properties, including multifamily properties. These platforms often provide detailed information about the properties for sale, including photos, descriptions, and financial data.
- Public auctions: Some properties are sold at public auctions, either by the government or by lenders who have foreclosed on a property. These auctions can be a great way to find a deal on a multifamily property. Still, they often require significant cash or a strong credit score.
- Networking: You can also find multifamily properties through networking with other real estate investors or reaching out to the current owners of rental properties. Additionally, you can find groups or clubs of real estate investors in your local area; they can also be a good source of information.
- Direct marketing: You can also reach out to property owners or landlords directly by sending them a letter or postcard letting them know you are interested in buying a multifamily property.
What are some online marketplaces to consider?
Several online marketplaces specialize in selling investment properties, including multifamily properties. The more popular ones include Roofstock, RealtyMogul, Fundrise, and RealCrowd. But the biggest one of all is LoopNet.
LoopNet is a commercial real estate platform owned by Costar, which has multifamily properties and commercial properties of all types, such as office, retail, and industrial, so the platform is great for finding commercial properties of all kinds.
One caveat for you, though. The properties listed on LoopNet are mainly those that are being marketed by a broker, meaning that there might be some off-market opportunities that you will miss.
How do I find multifamily properties on LoopNet?
Finding multifamily properties on LoopNet is relatively straightforward. Here's a step-by-step guide:
1. Go to the LoopNet website (www.loopnet.com) and click "Enter a Property Type".
2. Select "Multifamily" property and enter the location. This can be a city, neighborhood, or a zip code. Then click Search.
3. Review your search results and use the filters at the top to refine your search further.
4. Review the filters and update to what you'd like. Note how LoopNet has multifamily property types and subtypes, including Garden Properties, Low-Rise Properties, Mid-Rise Properties, High-Rise Properties, Dormitories, and Manufactured Housing/Mobile Homes. You can also specifically include Condos for Sale alongside the Multifamily Property types.
5. When you find a multifamily property on LoopNet that interests you, click on the listing to see more details, including information about the property, photos, and a location map.
6. If you have the CREBake Chrome Extension for LoopNet, you can view key metrics to determine if the property will work for your investment situation. If you don't, you'll need to manually calculate whether the multifamily property is right for you by considering some metrics described below.
7. Review the listing page. You'll see an Executive Summary, flyers and offering memorandums (OM), pro-formas, and other information provided by the listing broker.
8. If you have the CREBake Chrome Extension for LoopNet, you can save the listing to a spreadsheet for future review and sharing with your team.
Where does LoopNet show key metrics for a multifamily property?
When evaluating multifamily properties as an investment, investors should consider several key metrics. Some of the most important metrics include the following:
Price per unit
Price per unit is a way to compare the price of multifamily properties with different unit counts. It is calculated by dividing the property purchase price by the number of units.
price per unit = purchase price / number of units
LoopNet shows you the price per unit for a multifamily property in the Property Facts section.
The occupancy rate is the percentage of units in a multifamily property currently rented. A higher occupancy rate is generally better, as it indicates that the property is in demand and that the current rents are in line with market rates.
LoopNet shows you the "average occupancy" for a multifamily property in the Property Facts section. You will need to review the detailed financials to determine the actual occupancy when you get to the next stage of your due diligence.
Capitalization rate (Cap Rate)
The capitalization rate, or cap rate, measures the rate of return on an investment in a rental property. It is calculated by dividing the net operating income by the property's value. A higher cap rate indicates a higher return on investment.
cap rate = annual net operating income (NOI) / purchase price
LoopNet shows you the Cap Rate for a multifamily property when there's net operating income data to share along with a purchase price. That leads to something funny...
Net operating income (NOI)
LoopNet doesn't directly show you the NOI! They'll show you the cap rate and purchase price but not provide you the net operating income. You will need to calculate it or use the CREBake Chrome Extension for LoopNet to make it easy to review.
The net operating income (NOI) measures a property's profitability. It is calculated by subtracting operating expenses (such as property taxes, insurance, and maintenance) from gross income (rents and other income). A higher NOI indicates that a property is more profitable.
Gross rent multiplier (GRM)
The gross rent multiplier (GRM) measures the relationship between a property's sale price and its gross annual rental income. It's calculated by dividing the sale price of a property by its annual gross rental income. A lower GRM indicates that a property is a better value.
gross rent multiplier = purchase price / annual gross rental income
LoopNet will not show you this either. You'll need to review the financials to better calculate this as it requires understanding the gross income.
Cash flow is a property's cash generated after all operating expenses have been paid. It is one of the most important factors to consider when buying a rental property. A positive cash flow means that the property generates more income than expenses and can support the loan payments.
LoopNet cannot show you this information - it's specific to each potential investor, including you. They don't know your financial situation and whether you can pay for this multifamily property in all-cash, using a bank loan that will require a certain debt-service coverage ratio (DSCR), and other details.
This usually means you are doing quick commercial real estate metrics calculations when doing a first review, like what the expected down payment will be, what the resulting monthly loan payments will be, and whether the multifamily property will then be cash-flow-positive. You can use Microsoft Excel to do this or even just a pencil and paper.
With the CREBake Chrome Extension for LoopNet, though, it's all done for you after a quick setup. Click the "Check Metrics" button and it will show you this information. Then click "Save for Later" and it'll put the details into a spreadsheet so you can later compare all of your potential multifamily property investment options in one place.
CREBake helps you find multifamily property investments on LoopNet faster
We hope this walkthrough helps you find multifamily properties on LoopNet. If you want a way to faster analyze commercial real estate properties, including multifamily, but also office, retail, and industrial properties, try the CREBake Chrome Extension for LoopNet today.