Multifamily residential properties are good investments for novice and experienced real estate investors because of their many benefits compared to single-family homes. Some of these benefits include the potential for high returns, a stable income stream, and low vacancy rates.
This post explores the benefits of multifamily investing in detail.
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6 Benefits of Multifamily Investing
Multifamily residential properties are any housing building with two or more residential units under one roof. This includes apartment complexes, condos, duplexes, triplexes, and townhouses. Each residential unit has its own living space, kitchen, and bathroom.
Here are the reasons for investing in multifamily properties:
1. Bigger Cash Flow
A single-family home produces only one monthly income, while a multifamily rental property generates multiple monthly income streams because of the number of tenants. Depending on the number of units, there are more opportunities to lease a space to renters.
The rise of the sharing economy (think Airbnb and VRBO) has made multifamily properties more lucrative than ever before. Aside from long-term leasing, you can also use your units for short-term rentals, which increases the income you can get from these rental units.
Investors can also opt to live in one unit and rent the others. This makes multifamily residential units great retirement passive income sources.
2. Variety of Options
From duplexes to fourplexes, there are a variety of options available when it comes to multifamily investing. This means you can find an investment in a property that fits your budget and goals.
At the start, you can opt to invest in a duplex or a triplex property. As your budget grows, you can start investing in other buildings like apartments and condo units.
3. Easy to Finance
Lenders are becoming increasingly willing to finance multifamily properties, especially if they’re being used as short-term rentals. This makes them a great option for first-time investors who may not have a lot of capital to work with.
Multifamily residential properties are also higher valued than single-family homes because of the potential of rental income resulting in faster ROI.
4. Lower Vacancy Rates
Because there are multiple units in a multifamily property, vacancy rates are typically lower than they are for single-family homes. According to the National Multifamily Housing Council, the average vacancy rate for apartments was 5.1% in 2018. The vacancy rate is important in real estate because income is lost when vacancies are high. With single-family homes, you lose your income when the tenant leaves, but with multifamily properties you have a steady source of rental income even if one or two units are vacant and you’re looking for other renters.
And if you’re using your properties as short-term rentals, the possibility of getting each unit booked quickly is high.
5. Ideal for Property Management
In contrast to single-family homes, multifamily properties justify the cost of hiring a property management company to handle the day-to-day operations including maintenance and repairs. Instead of dealing with tenants individually, your property manager does this for you, giving you more free time and a truly passive source of income.
You don’t have to be involved in managing your rental properties any longer and simply wait for the monthly income to arrive.
Instead of buying one property at a time, investing in multifamily properties allows you to acquire several properties in one building. Down the road, you can develop the complex into a mixed-use area with a combination of residential and commercial units.
You can also negotiate with insurance companies to offer blanket insurance policies covering the entire building instead of dealing with individual insurance policies.
Invest in Multifamily Residential Through Real Estate Funds
As you can see, there are many advantages to multifamily investing. If you’re looking for a way to diversify your portfolio and generate passive income, multifamily properties should definitely be on your radar.
However, the success of a multifamily real estate investment depends on the investors’ ability to conduct due diligence regarding the property’s location, marketability, income potential, and other factors. These factors can make or break the investment.
If you’re not comfortable doing due diligence but would like to access high-return secured multifamily residential investments, you can do so through real estate funds. These are professionally managed funds that take care of selecting the property for you, managing it, and ensuring you earn a passive monthly income. Saint Investment offers these types of funds and can guide you with your investment decisions regarding this matter. And if you’re looking for other ways to diversify your real estate investments, check out trust deed investing.
Frequently Asked Questions:
Multifamily investment refers to the ownership and administration of multi-unit residential assets, such as apartment complexes. This sort of real estate investment offers the possibility for rental income, long-term appreciation, and tax advantages. Investing in multifamily properties is a popular alternative for people seeking to diversify their portfolio and create wealth over time since it generates passive income.
Multifamily investing can help diversify an investment portfolio by providing exposure to a different asset class than stocks or bonds. By investing in real estate, an investor can reduce their portfolio’s overall volatility, as real estate often has low correlations with traditional securities. Additionally, multifamily investing offers the potential for steady income through rental revenue, which can help to smooth out overall portfolio returns over time.
Investing in multifamily buildings may provide substantial tax advantages, including the opportunity to deduct depreciation and operating expenditures from rental revenue. This might lead to a decrease in taxable income and significant tax savings at the end of the year.
In addition, investors may benefit from tax-deferred exchanges, which allow them to avoid capital gains taxes when they sell a property and promptly reinvest the proceeds in a new investment property.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.