One reason investors are drawn to real estate is the diversification it can provide. Multifamily real estate’s appeal, in particular, stems from increased home prices, demand for affordable housing, lower single-family home supply, how efficiently a property can be sold at or close to market value, and changes in overall lifestyle preferences. 

Just as types of real estate properties can vary (industrial, residential, commercial, etc.), multifamily real estate comprises several subgroups, including apartment communities, age-restricted housing, independent senior living communities, and more. These subgroups are classified as either residential or commercial multifamily properties.

The following article provides a brief introduction to commercial multifamily real estate investing, helping you make more informed investment decisions that can potentially increase your income.

THE MULTIFAMILY PRIVATE PLACEMENT PLAYBOOK

Two common ways to passively invest in multifamily real estate are through REITs and private placements. REITs and private placements have several key differences, including the number of properties available, ownership structure, accessibility, minimum investment amount, liquidity, tax benefits, and returns. Learn more about REITs here. [1]

First-time investors are often drawn to private placement investing because the concept is straightforward to understand. Once a lesser-known investment vehicle in the real estate industry, private placement distinctly differs from publicly marketed real estate securities. A multifamily private placement deal occurs when multiple investors pool their capital to purchase a single property or a portfolio of properties. Investors can accomplish this with almost any type of real estate property, but when done with a multifamily property, it is referred to as a multifamily private placement deal. [2][3]

WHAT IS A MULTIFAMILY REAL ESTATE PROPERTY?

Multifamily real estate consists of residential properties with two to four housing units and commercial properties with five or more housing units. A smaller building with fewer units, like a duplex, would be categorized as residential. However, a more sizable operation, like an apartment community, would fall under commercial multifamily real estate. The defining characteristic of commercial multifamily real estate is that income is generated by renting individual units within a property to residents, as opposed to single-unit or single-family properties. [4]

A multifamily property is a tangible asset with an essential use and the ability to deliver cash flow and hedge against inflation. Depending on your investment strategy, you will have different risk-return profiles to consider. Smaller multifamily properties, such as duplexes, may have lower operational costs but offer different potential for scale and total return. [5] Value-add real estate investments, however, are high-risk and, therefore, have higher total return potential. [5][6] 

BEST PRACTICES FOR MULTIFAMILY REAL ESTATE INVESTING

Choosing a multifamily property to invest in can be a challenging task. Investors need to crunch the numbers to find the best potential investments. Calculating the difference between expected income and expenses is a quick way to narrow down your options. By applying the 50% rule, investors can determine the current yield of a specific property. [7]

In real estate investing, the 50% rule provides a rough estimate of a property’s expenses, which can help investors make more informed decisions. This percentage rule states that 50% of a property’s gross income would go to its operating expenses, and investors should anticipate that. This includes insurance, property taxes, vacancy losses, repairs, owner-paid utilities, and maintenance expenses. [2][8]

Therefore, if the investment property generates a monthly rent of $2,000, $1,000 will be allocated to the various property expenses listed above. Notably, this excludes any mortgage payments. When considering investing in rental properties, factor this into your monthly cash flow analysis.

The 50% rule is a useful guideline for determining whether something is worth investing in. Consider it an investment criterion that tells you whether to investigate an opportunity further.

Like the 2% rule, this is just a guideline because a property’s expenses are unlikely to be precisely 50% of the income every month. While it can be a good rule of thumb, it doesn’t always apply in real-world situations.

CALCULATE YOUR ESTIMATED MONTHLY CASH FLOW

Another essential step before investing in a multifamily property is to calculate the property’s estimated monthly cash flow. Cash flow is a catch-all term typically used to describe the income a property produces after all operating expenses and debt service have been paid. Positive cash flow is when a property’s income exceeds its costs, while negative cash flow is when its expenses exceed its income. [9] To calculate cash flow, you must know the property’s gross income, debt service, and total expenses. [9] Then, subtract total expenses and debt service from gross income to determine the net cash flow (remaining income after deducting all costs—e.g., mortgage, taxes, insurance, etc.). Gross income is slightly more straightforward because you only need to determine the property’s total income before deducting any expenses.

As an active investor, you aim to own rental properties with a positive cash flow. This income can offer investors potentially increased returns and serve as a safety net in case of an unexpected event, such as an emergency repair. The bigger the cash flow, the easier it is to sustain business expenses.

CALCULATE YOUR CAP RATE

Lastly, you must determine the investment property’s capitalization rate (cap rate). The cap rate is a standard metric that reflects the property’s income yield before debt. From a valuation perspective, cap rates are often used to determine a property’s market value based on its NOI. It is calculated by dividing a property’s net operating income (NOI) by its market value (or purchase price) and expressed as a percentage (x100). To use this metric in determining Fair Market Value, the calculation is NOI divided by the capitalization rate (cap rate) = estimated value.

It’s important to remember that metrics like cap rates are sensitive to economic disruptors. Therefore, market volatility must always be considered when evaluating an investment opportunity. 

WHAT TO LOOK FOR IN A MULTIFAMILY PROPERTY INVESTMENT

The first phase of multifamily investing is deal sourcing. As the general partner (GP), sponsors perform market research to determine potential multifamily assets suitable for investment as part of their due diligence process. Using key metrics, they can assess a property’s financial performance risk profile and identify its potential for profitability. These performance indicators/predictors enable data-driven decision-making and objectivity when measuring a property’s profitability rather than relying on intuition, anecdotal, or qualitative information. Four primary categories must be considered when determining a property’s viability: financial performance, investment analysis, market conditions, and management efficiency. [10]

A general partner (GP) or sponsor puts the deal together. They identify an investment property, secure the financing, and then invite passive investors, called limited partners (LPs), to participate in the deal. Passive investors will then provide a portion of the capital and earn money from the cash flow and the equity, depending on the deal structure. [2] A key benefit for the LPs is that the sponsor handles property management. They may hire a third-party property management company or oversee the management in-house, but passive investors do not have any labor-related obligations. [3]

Underwriting is one of a sponsor’s most important responsibilities, as the success of the investment heavily relies on the quality of the opportunity. [11] Underwriting in multifamily real estate involves evaluating risk and financial viability by analyzing a property’s current and projected income, expenses, and market conditions. This includes creating detailed financial models and downside scenarios. Sponsors perform underwriting to determine whether or not the investment meets the fund’s risk-return profile and supports the decision on whether to acquire a property. These findings are presented in a document or spreadsheet called a proforma (also spelled pro forma). A proforma is a projection of a property’s income and expenses. It serves as a simplified version of a property’s income and cash flow statements, often used for modeling and valuation purposes.

Multifamily market data includes property values, vacancy/occupancy rates, operational expenses, and new construction trends. These analytics are essential to sponsors whose product and investment decisions are heavily influenced by economic trends, supply, and shifting demographics. The sponsor will evaluate and conduct their due diligence once potential deals have been identified, thoroughly examining every aspect of the opportunity before bringing investors into it. [11]

WHY IS LOCATION IMPORTANT?

For real estate investors, location is everything. Prudent investors focus on properties in desirable locations, ensuring that renters keep units occupied and providing consistent cash flow. Understanding the multifamily market you are attempting to purchase or invest in is critical. For example, if there is a lower supply than demand, then prices should rise. [12][13]

One of the most fundamental drivers of real estate value is the balance between supply and demand. A limited supply, combined with high demand, tends to raise property values and rents. However, excess supply means weak demand—rents stagnate, and vacancies increase. Investing in areas where demand is outpacing supply is crucial. Cities with major employment industries tend to maintain a steadier rental demand. BAM Capital focuses on markets with diverse job opportunities and low unemployment rates, which typically do not rely heavily on a single industry. [13]

Properties near top-rated schools, retail, entertainment, dining, and other recreation options are at the top of many residents’ minds. Luxury amenities, such as resort-style pools, pet spas, valet trash services, and other premium offerings, can support higher rents. BAM Capital acknowledges that many residents prioritize convenience and lifestyle, so it acquires Class A properties in desirable areas with strong demand, population growth, and economic investment. [13]

Growing populations result in increased demand for housing. BAM Capital examines long-term migration trends and future projections to identify locations where people are moving in or out. High-growth areas often exhibit growing population and household formation, a higher percentage of renters compared to homeowners, and rising median incomes. Finally, proximity to major highways, public transportation, and airports significantly impacts a property’s appeal. BAM Capital focuses on properties where these aspects are available and convenient. [13]

BENEFITS OF PASSIVE INVESTING IN MULTIFAMILY REAL ESTATE 

Everything, from best practices and cap rates to cash flow, demographics, and supply and demand dynamics, to infrastructure and amenities, makes a huge difference when buying real estate. Selecting a cash flow-positive property in the right market and location is an invaluable way to help mitigate risk. 

Actively investing in multifamily real estate can be costly and time-consuming. A key benefit for the LPs is that the sponsor handles property management. They may hire a third-party property management company or oversee the management in-house, but passive investors do not have any labor-related obligations. [3]

As an award-winning sponsor, BAM Capital researches and gathers data to identify potential investment properties for investors.

CONNECT WITH A MULTIFAMILY REAL ESTATE OWNER/OPERATOR

BAM Capital offers a variety of growth, income, and development products. The BAM Multifamily Growth and Income Fund IV is a private real estate fund that seeks to balance cash flow stability, capital preservation, and long-term capital appreciation while providing superior risk-adjusted returns to investors. The fund demonstrates BAM Capital’s success in multifamily investing. BAM Capital continues to implement its signature investment thesis and, in fund format, will enable greater overall returns and lower risk through a multi-asset diversification strategy. [14]

PLEASE NOTE: BAM Multifamily Growth and Income Fund IV is a closed offering. To view our current offerings, click here.

Accredited investors can participate in multifamily private placements, which address many of the challenges associated with passive multifamily real estate investing. It provides you with all the benefits of investing in a multifamily property or portfolio without the headaches typically associated with being a landlord.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying assets targeted as having strong profitability potential and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while helping to mitigate investor risk. To date, BAM Capital has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

For additional multifamily real estate insights, visit Pathways to Passive Wealth, BAM Capital’s new platform designed to make real estate investing more accessible, transparent, and achievable for aspiring and experienced investors.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. Tax laws are subject to change. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect BAM Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. BAM Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 BAM Capital. All rights reserved.

SOURCES:

[1]: BAM Capital. (2024). “How to invest in a rental property for beginners.” https://capital.thebamcompanies.com/start-investing-real-estate-get-passive-income/

[2]: The Motley Fool. (2024). “How to Start Investing in Real Estate: The Basics.” https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/basics/

[3]: BAM Capital. (2025). “Purchasing and running an apartment complex.” https://bamcapital.com/purchasing-running-an-apartment-complex/

[4]: BAM Capital. (n.d.). “What is an Asset Class?” https://bamcapital.com/asset-class/

[5]: EquityMultiple. (2024). “Multifamily Investing: A Comprehensive Guide.” https://equitymultiple.com/blog/multifamily-investing#:~:text=1.%20They%20Offer%20Simple%20Financing%20Options%20Multifamily,of%20tenants%20that%20can%20generate%20impressive%20returns

[6]: CrowdStreet. (n.d.). “Glossary Terms.” https://www.crowdstreet.com/glossary

[7]: https://www.fortunebuilders.com/multifamily-investment-property/

[8]: SmartAsset. (2024). “What Is the 50% Rule in Real Estate?” https://smartasset.com/investing/50-rule-real-estate

[9]: SmartAsset. (2022). “How to Calculate Cash Flow in Real Estate.” https://smartasset.com/investing/cash-flow-real-estate

[10]: Google Generative AI. (2025). “Why are key metrics essential in multifamily real estate?” https://www.google.com/search?q=why+are+key+metrics+essential+in+multifamily+real+estate

[11]: BAM Capital. (2024). “What are the phases of multifamily real estate investing?” https://bamcapital.com/three-phases-of-real-estate-syndication/

[12]: PropertyShark. (2018). “How to Evaluate the Price of a Multifamily Property.” https://www.propertyshark.com/Real-Estate-Reports/6-easy-steps-for-evaluating-the-price-of-a-multifamily-property/

[13]: BAM Capital. (2025). “Multifamily investing: Why location and strategy matter.” https://bamcapital.com/why-location-and-strategy-matter-multifamily-real-estate-investing/

[14]: BAM Capital. (n.d.). “Current Portfolio.” https://bamcapital.com/