We meet a lot of single family home investors with hopes of transitioning into multi family investments. Worcester Investments developed from single family investments into apartments, and we've made plenty of mistakes along the way. We don't claim to be experts on the transition, but we've worked through dozens of struggles to break into the market as a multi family investment company. Here are a few tips for those of you who are ready or have started to make the change.

1. Work Your Way up to Apartments

Even if you already have the funds to invest in an apartment community, start with a duplex first. Regardless of how many single family homes you've invested in, making a gradual change will save you from an almost certain failure. Managing multi family exponentially raises the issues you'll have to face, and you should learn to master them at a manageable pace. Jumping right in to an apartment community, even a smaller one, takes a lot of preparation and planning. Here are some questions to answer before you take it to the next level.

• What will increase or decrease the property value of your multi family investment?
• Do you have qualified individuals to fulfill the property management and maintenance requirements?
• Do you understand the financing options and terms?
• How are you going to improve the multi family investment?
• How will your apartment investment's performance be evaluated?
• Do you have a realistic and reasonable return?
• Have you thoroughly vetted the risk and potential of the multi family investment?
• Do you and your investors feel great about the investment opportunity?

2. Evaluate & Project Conservatively

There are a variety of factors when investing in multi family for the first time that you can only master by experiencing them. Several unpredictable situations are going to be presented to you that hinder your progress. Takeover and stabilization are crucial periods that will directly translate the performance of the investment, and you, to your investors. Don't stretch your projections so far that there is no padding for erratic or unforeseeable circumstances. We're not saying you can never fail; we're saying you should prepare for the possibility.

3. Learn to Read & Understand Financial Statements

In order to truly vet a multi family investment property, you need to understand exactly what information is useful and necessary. Analyze trailing rent rolls, profit and loss statements, balance sheets and offering memorandums, and find out what that says about its possible improvements and future performance. You will be better equipped to determine how you will add value to the property and produce an adequate return. If you analyze and understand these vital sources of information, you should be able to answer these questions:

• What are the investment's greatest problems, and how are you going to solve them?
• What is the average monthly cash flow at its highest and lowest projections?
• How might the return vary over time?
• What improvements are necessary immediately and what will be needed over time?
• What will attract potential residents to your multi family property?
• How are the utilities set up, and what does that mean to your expenses and income?
• Are there any challenges that might prevent a bank from working with you?

4. Have Systems in Place Ahead of Time

The ability to scale your staff with your growth is a critical need. If you don't have the resources to improve and maintain your investment properties, your occupancy and income will be stunted. This means having designated policies that will enforce consistency across all areas of your business. When you start to collect a large handful of units and you have no choice but to hire property managers and maintenance staff, you need to be capable of passing on systems that will protect the quality and performance of your investment. Be prepared to change and implement new systems as you learn from new experiences and grow your portfolio.

The most important thing to remember is that you're going to make mistakes, and you have to be able to learn from them. Making the transition from single family homes to multi family communities can be just as difficult as it exciting, but if you approach it humbly and conservatively you will learn from any challenge that comes up.