Imagine you are a farm owner but have appointed different people for various farming processes. How will it affect your business? Your expenses will increase, and you won’t be able to make much profit on the final harvest. On the other hand, if you manage everything on your own, it would be a much more profitable deal for you and for your stakeholders.
When it comes to vertical integration in multifamily real estate investing, all the controls and profits are in your hands as the sole owner. You can then decide how to use that to flourish your business and keep the investors happy. There is more to vertical integration and how it adds value in multifamily real estate investing, So let’s dive deep into understanding the connection between the two better.
What is vertical integration?
Vertical integration is a business strategy combining different production stages into one company or organization. In the case of multifamily real estate investing, vertical integration means that one company owns and operates all aspects of the property management process: development and construction, leasing, property management, and even accounting services.
What does vertical integration mean for real estate?
The concept behind vertical integration in multifamily real estate investing is simple: Buy low, sell high. When you control every aspect of your business, from construction to maintenance and accounting to tenant relations, you can maximize profits by operating efficiently and cutting out unnecessary expenses like paying outside contractors for work that could be done internally by your staff members.
For instance, you might buy raw land from an investor who doesn’t want to develop it; then you hire a contractor to build a building on that property; then you sell the building for more than what you paid for the land and the construction costs combined.
In addition to financial benefits such as increased cash flow and decreased expenses, vertical integration can add value by increasing your knowledge base and experience in multifamily real estate investing. You’ll learn about different types of properties and how they perform in each market cycle. You’ll also gain insights into what works best for attracting residents and retaining them over time.
How does it add value to multifamily real estate investment?
In the multifamily housing world, vertical integration is often used to describe a real estate investor who owns both the building and the management company. This allows them to manage their properties while controlling other aspects like maintenance and leasing. This strategy can add value because it allows investors to keep costs down while maintaining control over all aspects of their investment properties.
Multifamily investors can benefit from vertical integration in several ways:
- Vertical integration allows you to source properties directly from developers without going through brokers or other intermediaries, saving time and money.
- It allows you to negotiate better prices on acquisitions because developers know they have no other buyers in play — they’re not competing with anyone else who might be willing to pay more than they are.
- It allows investors to manage their due diligence process when buying raw land or other types of property (like shopping centers) without hiring a third-party consultant or appraiser who might have a conflict of interest with their interests.
What does this mean for you?
Vertical integration is important for real estate investors or anyone involved in the multifamily real estate market. It gives you a greater ability to control and plan out your business and get more involved with the real estate process. Ultimately, it can make the entire experience more lucrative, from getting a better buy on properties to making more money after purchasing them.
There are many vertically integrated real estate companies that offer an opportunity to invest in multifamily properties. And HOMZ is one of them. This company is building sustainable and attainable multifamily housing communities across the US suburbs. It is involved in every stage of development of these communities, from construction to management and sales.
Investing in the HOMZ community assures you good returns on your investment and a better living environment as the communities are thoughtfully planned to offer its residents a great living experience. Want to know more about HOMZ? Visit (insert website link)
