BENEFITS OF INVESTING IN A MULTI-FAMILY PROPERTY
Multifamily properties play a vital role in the real estate industry. Multifamily housing is viewed as the best and most affordable housing option. And, not just affordable for families, but for people at various stages in their lives. Highly preferred among real estate investors ensures a lower vacancy rate due to the high demand for these properties. Therefore, it is a fantastic option for anyone looking to diversify their real estate investment portfolio.
A multi-family project often referred to as a multi-dwelling unit (MDU), can be a type of house with two or more units under one roof or a few buildings in a single collection/complex.
Investing in a multi-family property is altogether a different experience when compared to investing in single-family properties. Here are some tips that will help you to obtain a deeper sense of how to buy property in multi-family real estate, and what things to keep in mind while you get started.
A true investor always focuses on the numbers while making a multi-family property deal, as he/she knows it is quite different compared to other real estate deals. These financial numbers will expose the bottom line of an investment property, as well as reveal its real market value.
Why Invest in a Multifamily Property?
Increased Cash Flow
The cash flow advantage is one of the main reasons why real estate investors should consider putting their eggs on multifamily properties. As mentioned above, multifamily properties are in high demand. You can expect a high occupancy rate on your property, especially when in a strategic location.
Eventually, this can translate to higher monthly revenue. One strategy to boost your monthly cash flow is to invest in this type of property in a variety of geographically diverse markets. This will enable you to gain multiple income streams from the same type of investment.
Affordable Acquisition Cost
When you base it on a per-unit basis, the cost of constructing a multifamily property is more affordable than other types of real estate properties. It is, therefore, a more cost-efficient investment and relatively risk-free for first-time investors. If you choose to apply for a mortgage loan to build or purchase this type of property, you can expect lower mortgage financing rates.
The foreclosure rate on apartment buildings or other types of multifamily properties is lower as compared to a single-family unit. This explains why mortgage lenders can offer competitive rates for investors of this type of property. This reduces operating costs will bring more revenue to your pocket in the long run.
Easier to Manage
It is easier to manage 12 units in one roof than it is to handle 12 different rental units spread throughout the city. This is a practical reason that makes multifamily property investment makes a lot of sense. Also, it is a type of investment that would justify hiring a property manager.
If you own just one property or a rental unit, hiring a property manager might not make a lot of sense, especially if you consider the cost of hiring an expert. But with a multifamily property, you will be able to optimize the investment on a property manager.
Enjoy Tax Breaks
The government will reward you for providing housing for the residents of a given city. To incentivize this effort, the government provides tax incentives to multifamily property investors, of which you can take advantage of.
The type of tax incentives you can enjoy will depend on the type of classification on your property. Any tax breaks you can get would mean added revenues toward your pocket.
High Appreciation Rate
Even when you do not enjoy immediate cash flow on your multifamily property, they still hold their value. And, that value increases over time. This is true with most real estate properties but the appreciation rate is higher with this type of property. The appreciation is not guaranteed, though.
Next, if you want the value of your property to get a boost, make sure that you maintain it. When your property is well-maintained, you can offer a good rental price on the property, which drives more potential renters.
Less Investment Risk
Don’t get it wrong, there are still risks involved when you invest in a multifamily property. But the risks are considerably lower than other types of property investment, even including single-family homes. The only risk involves the vacancy rate.
Since you are dealing with multiple separate tenants, the risk of a complete vacancy is relatively low. As long as you have done your research about the location beforehand and you market your property, you shouldn’t have to worry about that. When all else fails, the value of a multifamily property grows over time.
Build Your Investment Portfolio Faster
Finally, if you are serious about real estate investing, this type of investment can boost your portfolio quickly. This is a good option if you want to invest in multiple rental units. After all, it is easier to acquire one real estate property with multiple units than it is to acquire multiple single-family rental units.
Just imagine this: inspecting and closing on one apartment building are easier and less time-consuming than doing the same for 5 or more single-family homes.
Things You need to Know When Investing in a Multifamily Property?
Know Your 50%
The best way to browse through possible deals is to crunch the figures and approximately plan what proportion of a chosen multi-family property will cost you as an owner. You do it by calculating the difference between expected incomes and expenses. When you don’t have access to any relevant information, such as a clear neighborhood comparablesyou may have to use the 50% rule. As per this rule, your estimated expenses are always half of your predicted income. The difference in your projec