Brandon Freeman discusses how he has built his rental investment portfolio. He explains how to calculate a cash-on-cash return so you can understand for yourself how to build your own portfolio strategically. He discusses why he separated out his property management company from his assets, and how he keeps a mix of short-term and long-term rentals to maintain a diversified amount of cash flow options for his business.
What to Look for When Buying a Multifamily Property: Insights from Real Estate Entrepreneur Brandon Freeman
Welcome to Business Talk, Sister Gawk. I’m Bekkah, and today’s podcast episode is “What to Look for When Buying a Multifamily Property.” Joining me is Brandon Freeman, a seasoned real estate entrepreneur with a wealth of experience in multifamily properties. In this episode, we delve into the key considerations for those interested in investing in this lucrative real estate sector.
Discovering Brandon’s Multifaceted Real Estate Ventures:
Bekkah: Brandon, before we dive into the details, can you share a bit about your background and the various real estate ventures you’re involved in?
Brandon: Certainly, Bekkah. My wife, a friend, and I own Freeman Investments, a business centered around real estate. It started with our first home in 2019, intended for flipping but turned into a rental. Now, we’re into single-family homes, multifamily homes, and short-term rentals. We also have a construction company for property renovations, a property maintenance company, an asset-holding company for commercial buildings, and an entertainment company for a unique bar in Hibbing, Minnesota.
How to Navigate the Real Estate Landscape:
Bekkah: With such diverse ventures, let’s delve into your expertise. What led you to venture into real estate, and how did your journey unfold?
Brandon: My goal was always to retire young and avoid a traditional job. Initially exploring day trading in 2017, I later gravitated towards real estate after buying our first home at 29. I fell in love with the sector, leading to the multifaceted real estate business we have today.
Key Considerations When Buying a Multifamily Property:
Bekkah: Now, let’s get into the specifics of buying multifamily properties. What’s the first thing you consider when evaluating a potential investment?
Brandon: The first step is online research and network contacts notifying us of available properties. Subsequently, I focus on the numbers—purchase price, cash on cash return, and potential remodel work. Numbers play a crucial role in deciding whether a property is worth pursuing.
Understanding Cash-on-Cash Return:
Bekkah: You mentioned cash-on-cash return. Could you elaborate on what that means for those unfamiliar with the term?
Brandon: Cash-on-cash return assesses how quickly an investment can recoup its upfront costs through rental income. It compares the initial investment to the annual net cash flow, providing insights into the investment’s profitability.
Determining Investment Sweet Spots:
Bekkah: What benchmarks do you look for in terms of the cash-on-cash return, and what’s your ideal timeframe for recouping the investment?
Brandon: I typically look at a five-year spectrum, but the sweet spot for me lies between a 2-3-year cash-on-cash return. If I can achieve this, the investment becomes more attractive.
Budgeting for Ongoing Maintenance:
Bekkah: Maintenance is a significant aspect of property ownership. How do you structure ongoing maintenance, and what percentage do you set aside?
Brandon: Maintenance in multifamily properties can be challenging. We allocate funds from rent exclusively for property upkeep, ensuring that our properties remain in excellent condition for the long term.
Occupancy Rates and Tenant Considerations:
Bekkah: When evaluating a property, do occupancy rates matter to you, and how do you approach properties with varying tenant occupancy?
Brandon: Occupancy rates are crucial. Buying a property with low occupancy may mean a longer time to fill units, impacting profitability. It’s a factor we always consider when assessing potential investments.
Utilities and Geographic Considerations:
Bekkah: How do you handle utilities in multifamily properties, and does the geographic location influence your decisions?
Brandon: Managing utilities in multifamily properties involves considering whether units are separately metered. Geographic proximity is vital, as being within a 30-mile radius streamlines construction and maintenance tasks, especially during adverse weather conditions.
Adapting to Market Conditions:
Bekkah: Considering the current real estate landscape, how do you anticipate market conditions, and what’s your strategy going forward?
Brandon: Market conditions can be unpredictable. Currently, we’re focused on saving for future purchases when favorable deals arise. While we’ve paused buying, we remain open to opportunities aligning with our criteria.
Navigating Commercial Loans and Interest Rates:
Bekkah: As you expand your portfolio, how do you navigate commercial loans, and how do interest rates impact your decisions?
Brandon: Expanding the portfolio often involves commercial loans, typically with higher interest rates than residential mortgages. While interest rates are a consideration, the long-term benefits of building assets outweigh the higher rates.
Legalities and Due Diligence:
Bekkah: For someone new to real estate, what legal considerations should they be aware of when purchasing a multifamily property?
Brandon: Properties should be correctly zoned, and due diligence involves checking with utility companies to understand how utilities are set up. Thorough research before purchasing is crucial to a smooth transaction.
Advice for Aspiring Real Estate Investors:
Bekkah: Finally, what advice would you give to those looking to venture into real estate, especially in the multifamily sector?
Brandon: Listen to podcasts, educate yourself, and overcome the fear of taking the first step. Real estate requires diligence, but the rewards are significant. Learn from mistakes and continuously improve.
Connect with Brandon Freeman:
For those interested in connecting with Brandon and following his real estate ventures, you can find him on Facebook at Freeman Investments and their website Freeman Investments LLC, or under LBR Management.
Conclusion:
Exploring multifamily properties in the real estate market can be a lucrative venture with the right knowledge and strategy. Brandon Freeman’s insights provide valuable guidance for anyone considering this investment path. As you embark on your real estate journey, remember to conduct thorough research, stay informed, and be ready to adapt to market conditions. Happy investing!
