Many individuals desire to invest in rental property but are unsure where to begin. Many investors should start by purchasing multifamily properties. Multi family real estate investing is a popular form of real estate investing because it is a class of assets that the majority of people can comprehend, having previously rented an apartment or bought a home.
People are able to comprehend the basics: each unit must include a functional kitchen, bathroom, and a combination of bedrooms and living space. Typically, monthly or annual leases with straightforward documentation regulate rentals.
Buying multifamily properties is significantly less complicated for the average investor than investing in office space, retail space, hotels, and other asset types. It is an excellent way to begin investing in commercial real estate.
Pros Of Investing In Multifamily Real Estate
There are major benefits to investing in multifamily properties, including:
- Cash Flow – One of the reasons investors favor multifamily investing is the monthly cash flow they create. Predictable rents and the ability to easily flip over and re-lease apartments in strong markets ensure consistent cash flow year after year.
- Passive Income – Investing in multi family units is an excellent way to produce passive income. It is easy to engage a property manager to handle your day-to-day tasks.
- Valuation Potential – Those with a long-term investment outlook will discover that investing in multi family properties often appreciates and are more resistant to economic downturns. Real estate values fluctuate, but throughout numerous real estate cycles, they typically continue to rise.
- Lowered Risk – Compared to other real estate asset types, multi family investing is deemed a reasonably "safe" investment. Because even during economic downturns, individuals require a place to live. In fact, many individuals are compelled to sell their homes and relocate to rental housing during a recession.
- Lesser Loans – One advantage of investing in multifamily housing is that it can often be acquired with a single, straightforward, conventional bank loan. Compare the acquisition of 10-unit apartment buildings to the acquisition of ten single-family rental homes. The former requires a single loan, while the latter requires ten separate loans.
- Insurance Ease – Investing in multifamily buildings is accompanied by basic insurance and finance. As the number of units expands, the insurance coverage will get more complicated, especially if certain facilities (such as a rooftop terrace or outdoor pool) could raise an owner's liability. However, insurance companies are typically knowledgeable about multifamily assets and will be able to create coverage with relative ease.
- Scalability – The scalability of a portfolio within this asset class also attracts investors to multi unit real estate investing. If they choose to choose, an investor can expand their portfolio by two units at a time. When investing in strip malls or hotels, for example, which tend to have higher entry barriers, it is considerably more difficult to scale your portfolio.
- Tax Benefits – Multifamily real estate investment has substantial tax advantages. Most investors finance their real estate purchases using a mortgage. They can then reduce mortgage interest paid during that fiscal year, which tends to be larger in the initial few years of ownership due to the loan's amortization process.
- Product Types Diversity – While we consider “multifamily” as a single type of real estate asset class, the sector is actually big and offers investors the possibility to buy multiple different product types.
- Multiple Investment Mechanisms – People are also drawn to multi unit real estate investing since there are several investment opportunities. You can acquire a multifamily building alone or in partnership with others. You can invest through syndication, allowing you to gain the benefits while playing a less active role in the partnership. You can diversify the location of your holdings by investing in a global multifamily fund that invests in multifamily properties around the country (and, therefore, provides some risk mitigation). Alternately, you can invest through a real estate investment trust (REIT), which maintains liquidity because REIT shares can be bought and sold as easily as stocks. These are only a few options on how to invest in multifamily real estate, which explains why the asset class is so appealing to a wide range of investors.
Cons Of Investing In Multifamily Units
Despite the numerous benefits of investing in multi family homes, there are also downsides. Listed below are a few cons to take note of:
- Management Intensity – Even though property management can be outsourced, investing in multifamily apartments is still management-heavy. In fact, the opposite is true. A multifamily property necessitates the management of numerous individual leases, diverse tenants with varying repair and maintenance needs, tenants who want to communicate and pay their bills in various ways, etc.
- Cost – Depending on where you wish to invest, multifamily real estate can be quite costly. In reality, this is one of the greatest entry barriers for the majority of investors.
- Competition – As stated previously, multifamily properties tend to attract the interest of more experienced investors. This might result in high competition for multifamily properties, excluding many novice investors.
Remember that getting started is the most critical component of real estate investing. Investing in multi family properties is an excellent means of achieving this goal.
Want to know how to start investing in multifamily real estate? Schedule an appointment today with Saint Investments’ professionals for free!