5 things to consider before becoming a full-time property investor
Whether you’re new to property investing or an experienced investor looking to expand your portfolio, multifamily real estate is filled with opportunities for long-term growth. But establishing a full-time career in real estate investing requires patience, empathy, determination and constant awareness of market data and trends.
We spoke with Ed Ely, President and Head of Commercial Term Lending at JPMorgan Chase, to better understand the unique potential of this industry. He shares two major opportunities for real estate investing and five things to consider before you dive into it full time.
Real estate is a great long-term, tax-efficient investment
“The great thing about real estate is, over time, it's been a very good investment,” Ely says. But success in the industry doesn’t happen overnight. If you’re interested in becoming a full-time property investor, it’s best to focus on slowly building up wealth over time.
“The property owners who are successful look at it as building long-term cash flows, versus making quick turnarounds,” Ely says. “They start off with a small property over time, and when it increases in value, they use some of that value to invest in other properties.”
Another benefit is that property investment is extremely tax efficient. If you’ve already invested in a property and that property goes up in value, you can use that equity to invest in a larger building without paying taxes on the capital gain.
“It's very tax efficient to continue to grow your assets and wealth by being able to sell and upsize your portfolio without incurring huge taxes,” Ely says.
Property investment helps provide much-needed housing
Generally, the demand for workforce housing far outstretches the supply — which explains why most investors start off with workforce housing. For patient investors, Ely explains now is a great time to invest in properties and help meet these demands by providing safe and stable housing options.
5 considerations before quitting your day job
1. Ensure you have the capital to maintain your properties
One of the most important parts of a successful multifamily real estate investment business is maintaining your properties. The more you focus on maintaining your buildings, the longer your tenants will want to stay — and less tenant turnover means more property stability.
“One of the mistakes that people make is they underinvest on maintaining their property, thinking that they're going to maximize their short-term cash flows,” Ely says. “But when they start doing that, they start having maintenance issues — and it gets way more expensive. So making sure that you have the proper money to keep the property up and running in an efficient, safe and healthy way is most important.”
2. Focus on your tenant relationships
“Like any sort of business, the real estate business and owning property is a customer service business and having great relationships with your tenants is going to maximize your stability and return in those properties,” Ely says. “In real estate, turnover of tenants — that instability — will build up over time, hurt cash flows and make the investment not worth as much as they thought it would.”
Ely also points out the importance of communicating with your tenants and staying flexible enough to accommodate their needs — especially on the heels of a global pandemic. “Having the ability to work with tenants during hard times is really important,” Ely says. “That's one of the lessons that people learn.”
3. Invest in properties in close proximity
For those newer to investing or owning multiple properties, Ely suggests buying properties that are near each other.
“Most of our investors like to be hands-on — they like to be able to see their properties,” Ely says. “So being able to cluster their properties close by helps with management and vendors, since they can potentially use the same ones on all of their properties.”
Clustering your properties can also help accommodate your tenants and keep you in tune with the market of that area. For instance, if you’re screening prospective tenants, and one of your buildings is full, you can try to accommodate those tenants in your other property nearby. And you become familiar with the local areas, down to amenities, schools and other services nearby.
“If you’re all over the place, you won’t have those same sorts of benefits,” Ely says.
4. Know the ins and outs of the market
“Anybody who's going into commercial real estate has to understand the environment, because it’s a changing environment,” Ely says. “Stay on top of things, and have good resources.”
Rather than scouring the internet for answers, Ely explains, comprehensive platforms like Story by J.P. Morgan integrate market data and trends to help you stay up to date on the latest industry happenings.
5. Leverage digital tools
Real estate is finally catching up with other industries when it comes to technology adoption.
“There's been a huge acceleration in digital, and a needed one, as it’s better for tenants and better for the industry,” Ely says.
From digital lease signings to paying rent online, both tenants and property owners are enjoying the benefits of the digital processes.
“As technology is coming into real estate, there’s more enthusiasm for younger generations to be involved in the family business than I've seen in the past,” Ely says.
This is hopeful news for investors looking to pass their businesses on to their children — and for digitally fluent generations who hope to continue their family’s legacy or enter the industry point blank.
“It's good to see the next generation coming in, and they're way quicker at adopting new technology,” says Ely. “And technology is going to be a huge piece of real estate going forward.”
By the editorial team at Story by J.P. Morgan
Published February 2021; updated August 2022