If you’re reading this, chances are you’re interested in multifamily real estate investing in Michigan. As someone who has built a successful real estate portfolio in Metro Detroit, I can tell you firsthand that multifamily investing is one of the best ways to generate passive income and build long-term wealth.
But it’s not just about buying any property and hoping for the best—you need a plan and a strategy. That’s where my 4 Simple Formulas for Success come in. Follow these, and you’ll be on your way to smart, profitable investments!
Watch my YouTube video about this topic here: 4 Essential Rules for Investing in Multifamily Real Estate
Multifamily Real Estate Investing in Michigan or Anywhere Else: 4 Simple Formulas for Success
1. Understand How a Property’s Valuation is Determined
Whether you’re doing multifamily real estate investing in Michigan or somewhere else, one of the most critical things you need to know is how to determine a property’s value.
The formula is simple:
Net Operating Income (NOI) / Cap Rate = Valuation
Where does NOI come from? Income minus expenses = NOI. But here’s the catch: DO NOT include your mortgage payment in this calculation. NOI is strictly revenue minus operating costs.
The key to success? Only buy properties where you can increase the NOI.
Why? Because when you raise the NOI, the property’s valuation also increases, giving you more equity and potential profit. If you can’t increase the NOI, do not buy the property. It’s that simple.
Related Video: How to Analyze Multifamily Real Estate in Under 5 Minutes
2. Follow the 50% Expense Rule
When evaluating a multifamily property, always assume a 50% expense ratio. This means that half of the property’s income will go toward operating expenses.
Now, if you have in-house property management or actively manage the property yourself, you might be able to lower this ratio to 35-40%. However, if you’re just beginning to invest in multifamily real estate or you’re relying on third-party management, stick to the 50% rule. This will help ensure you’re not underestimating costs and making a bad investment.
3. Every $1 Increase in NOI Exponentially Raises the Valuation
This is where the real magic happens in multifamily real estate investing.
For every $1 you increase your NOI, your property’s valuation increases exponentially.
For example, let’s say you own a property with a 6% cap rate. If you increase your NOI by just $10,000, your property’s value jumps by $166,667 ($10,000 / 0.06). That’s the power of forced appreciation, and it’s one of the BIGGEST reasons multifamily real estate investing can be so lucrative.
Related Video: Making Money in Real Estate for Beginners
4. Understand the 1% Rent Rule
The 1% rule is a quick and easy way to evaluate whether a property is worth considering.
Don’t buy a property unless the monthly rent is at least 1% of the purchase price.
For example, if you’re looking at a property that costs $1,000,000, it needs to generate at least $10,000 per month in rental income. If it doesn’t, it might not be the best deal.
Remember: There’s ALWAYS another deal, so don’t settle on one that doesn’t meet your standards.
This rule helps ensure you’re buying properties that generate enough income to cover expenses, mortgage payments, and still leave room for profit.
Multifamily Real Estate Investing in Michigan: The Key to Building Long-Term Wealth and Financial Freedom
Multifamily real estate investing in Michigan is an incredible opportunity—if you do it the right way. By understanding valuation, sticking to the 50% expense rule, leveraging NOI to increase value, and following the 1% rent rule, you’ll set yourself up for long-term success. I’ve built my own real estate portfolio by following these exact principles, and I KNOW they work.
Are you ready to start investing in multifamily real estate? I created The Stephan Group Brokerage to help investors find, analyze, and negotiate great deals, as well as operate their real estate portfolio here in Metro Detroit. If you want help finding the best investment properties, contact us today and work with the experts to realize your investment goals.
