Whenever I look at a property to purchase, I always focus on its potential. I look at the property as a whole—what needs to be done, and what it can become once those things are completed. I often see newer investors struggle with this concept. They focus only on what the property is producing today, which limits their buying pool and prevents them from taking action.
With long-term buy-and-hold investing, you have to think differently. If a property is tenant-occupied and rented below market, you can’t rely solely on today’s numbers to determine its value. Those below-market rents are suppressing the property’s current performance. Now, if you’re buying a large apartment building with 100–1,000 units, current income plays a much bigger role because it takes significant time, money, and effort to convert units to market rent. But with small multifamily properties, that transition is far more manageable, which makes understanding a property’s potential incredibly important.
It’s also important to note that most properties you see on the market—or that owners are motivated to sell—are not high-income, fully turnkey assets with market rents in place. If a property were well maintained, running smoothly, and rented at market rates, the question becomes: why would the owner sell it? In most cases, sellers are looking to cash out, stop being a landlord, or get rid of some type of headache. That’s where you come in as the buyer—by recognizing the opportunity where others see inconvenience.
I’ve purchased multiple properties, and most of them were tenant-occupied with below-market rents—sometimes 50% below market. I actually see that as an advantage, because I understand the upside. Yes, in the short term, the numbers might be tight or even negative, but I’m not buying these properties for one year. I’m buying them for many years, and in some cases, I may never sell them.
That mindset changes everything. When you buy in the right location, small multifamily properties are hard to come by. If you focus on what a property can produce in the future rather than what it produces today, you put yourself ahead of the game. One thing I always tell my clients is this: once you own the property, you’re in control. Sitting on the sidelines and analyzing only gets you so far—ownership is what gives you leverage and opportunity.
Once you own the asset, a savvy investor also accounts for tax advantages, refinancing opportunities, and the ability to pull equity out of the property. I started buying homes five years ago, and I’ve already completed three or four cash-out refinances using this exact thought process. These weren’t traditional BRRRR deals. They were properties I bought, held, improved over time, and later refinanced.
In one case, I saw so much potential that I paid $90,000 over asking price for a property with tenants nearly 50% under market rent. Within two to three years, I renovated the property, lived in one unit, rented the other at market rate, completed a cash-out refinance, pulled out all of my initial capital, and refinanced into a lower rate. The result was the same payment on a higher loan amount and a stabilized, cash-flowing property in an A+ location.
You also don’t want to be in a position where you’re buying a property with only short-term thinking. Oftentimes, this leads people to purchase homes in the wrong areas for quick turnaround returns. That may seem like a good idea today, but when you’re stuck chasing rents, dealing with constant issues, and on top of all that your property is barely appreciating, you’ll find yourself wondering why you didn’t buy a solid, easy-to-manage home that could have saved you a lot of stress. Prospective thinking is smart, buying a property on quick returns is impulsive.
So if you’re looking to buy an income-producing property, make sure you understand what it can bring you, not just what it brings in today. The investors who stay ahead are the ones who own assets. And as inflation continues and rates eventually come down, those who own property will be the ones who benefit the most.
Good luck.