Tips for Investing in Multi-Family Properties
Investing in multi-family properties is a great way to boost your income while simultaneously reducing vacancy rates. Since you can house more than one family, you are bound to find tenants quickly and even have the option of staying there yourself until you find tenants to occupy the entire building.
If you are used to renting out single-family homes, you may have a bit of a learning curve while renting out a multi-family home. Getting started with your rental property investment can be frustrating at times. However, it is a lucrative and achievable investment plan for anyone willing to invest the time and put in the work. If you are well-established in single-family property investments, consider branching out and investing in a multi-family home.
If you are just starting in real estate, it may seem a little intimidating to start with a multi-family property. After all, it is more expensive to purchase and finance, but that shouldn’t leave you discouraged. You are bound to generate more monthly income with rental payments coming from multiple tenants. Along with that, it’s a generally safe investment, considering there is always a need for rental housing units.
What Is A Multi-Family Property?
A multi-family property is a property that can house more than one family or household. They typically contain two or more housing units, each having its own kitchen, bathroom, and living quarters. Some examples of these properties include:
- Townhomes
- Apartment complexes
- Duplexes
- Condominiums
- Quadruplexes
Multi-family properties can provide consistent and passive cash flow while also growing your portfolio. Along with that, although they are more expensive, these properties are relatively easy to finance. Whether you are just starting in the rental industry or a well-established property owner, you may want to look into the pros and cons of multi-family housing plans.
Some of the pros of investing in multi-family properties include:
- Steady, passive cash flow all year round- Multi-family properties are profitable investment opportunities. Investing in real estate is a great way to make passive income without lifting a finger, especially when you hire a property manager.
- Property appreciation over time- Although it’s never guaranteed, a multi-family property is likely to appreciate over time and stays afloat easier during economic hardships.
- One loan for multiple housing units compared to many loans needed for multiple single-family homes- If you want to invest in many housing units, that typically means a bank loan for each property. With a multi-family property, you can manage multiple units by only taking out one bank loan.
- Great tax benefits that come along with multi-family real estate investments- Depreciation can be used (even if the property appreciates over time) to offset a portion of rental income for the fiscal year, which is a huge advantage.
Some cons of this investment may include:
- Managing multiple units- When investing in a multi-family property, you should take into consideration the amount of management that is needed. If you don’t want to manage multiple units’ maintenance requests, rental payments, and more, it would be wise to hire a property management team.
- More expensive investment- Although it may seem obvious, it’s worth noting that multi-family properties can be much more expensive to finance than single-family homes. Depending on the location, you may be looking at a very large down payment, which makes this type of investment a little bit intimidating.
More Benefits of Investing in Multi-Family Properties
Investors who are just starting out in real estate may quickly conclude that multi-family properties are difficult to finance and a lot of work to manage. However, this misconception can steer you away from a profitable long-term investment plan. Some of the most significant benefits that come from investing in multi-family real estate include:
- Multi-family properties are much easier to finance and pose less risk of foreclosure.
- You only have one property location to manage with a multi-family unit.
- You can grow your investment portfolio quicker with multiple rental units.
- Vacancy rates are lower with multi-family rentals as there is always a demand for apartments, townhomes, or duplexes.
- You can set your monthly rental rates competitively and according to inflation.
- You can live in your rental property if you want while renting out another unit of the property.
Not only is it realistic for established property owners to invest in multi-family properties, but it’s also a great way to start for beginners in real estate. After reviewing the benefits, you may want to consider looking into multi-family real estate.
How to Prepare For Investing in Multi-Family Properties
When investing in multi-family properties, there are certain things you’ll want to keep in mind to make sure the process goes smoothly. For example, making sure to evaluate your financial situation in depth is vital in the preparation state. You must be able to cover any losses, account for repairs, and make sure you have enough to cover any other obligations that come with purchasing real estate.
Along with evaluating your personal finances, you’ll also want to study the location in which you are buying real estate. Location is one of the most important aspects of your investment. Why?
You’ll want to consider all of the following:
- What is the crime rate, and what are the trends?
- Are there good schools in the area or nearby?
- What are the average rental rates in the area?
- Can you compete with the average rental rates?
- Are there desirable job opportunities around?
- What neighborhoods are the most desirable and have the most potential?
- Is outsourcing a property management team necessary?
As an investor, knowing the property’s location and understanding the local market is just the first step. Answering these questions can provide you with vital information that can affect your overall investment decision. Is the investment a good deal compared to other properties in the area?
Most investors don’t want to bear all the responsibility of managing a large multi-family property. Most of the time, investors with many units or large properties don’t have the time to manage rental payments, maintenance requests, and tenant screenings. Luckily, this is what your local property managers are for. Before diving into the world of real estate, do your research, have a plan. New investors should consider hiring a local property management company, as an experienced property manager will help with the day-to-day details.