Why investing in multifamily properties?
There can be a lot of advantages of multifamily property investing. Check out these benefits, and considering adding some of these assets to your portfolio.
Multifamily properties come in all shapes and sizes. By definition, a multifamily property is anything with more than 1 unit. 2-4 unit duplexes, triplexes, and fourplexes are considered residential. 5 plus unit apartment buildings are considered commercial real estate. Especially when it comes to financing. Smaller 2-4 units can be especially advantages for those looking for their way onto the housing ladder. If you don’t own your own home yet, one of these properties can be ideal. Live in one, rent out the others. That income may be used to qualify you for a home loan. That income may even pay for you to live free. If you move up, and retain the property, it becomes a pure rental property investment which can go on providing cash flow for years.
Cost Per Door
Multifamily properties typically cost less per unit than single family homes. For example; you may find a single family home, and a duplex virtually next to each other for almost the same price. Yet, you may get the same amount of rent for each unit in the duplex. For example; if the sales price is $300,000, you are only paying $150,000 per unit in the duplex. If local rents are $1,500 per month. The house may only give you $1,500, while the duplex could give you $3,000 a month in income, of $1,500 and free use of the other half.
Efficiencies of Scale
Walmart, Costco, and Amazon do so well because they do things on a big scale. They are able to negotiate better discounts, manage more efficiently, and move product more effectively. With multifamily apartments you can generally operate 100 units for less time and money, than trying to buy 100 single family homes. In proportion, your labor, technology, material, and marketing costs are all lower with a multifamily apartment building. Plus, managing loan paperwork and closings is just far less consuming. You can have just one handyman, leasing agent, and on-site property manager, because everything is in one place. Versus maybe having a dozen spread out, and having to manage those teams.
Control Over Asset Value & Performance
One of the best benefits of multifamily property investment is the control investors have over their assets. You can rehab a single family home, and sell it for a little more, or nudge up the rent each year. Yet, at the end of the day it is still just a house, and its potential is generally capped by surrounding real estate comps. Owners of apartment buildings can do a lot more. Every community improvement can lift the value of the entire building and each unit. Put in a pool, and you may increase the appeal and value of 100 units, versus just one house. The same for landscaping and exterior painting, and lobby spaces. The ROI on those improvements can be far greater than on just one home. You can also reposition the building to appeal to different crowds. For example; affluent seniors seeking an assisted living living facility, high earning professional, tech workers, or Section 8 tenants. This can directly affect the rents you get, and could propel them far above neighboring properties. That improves cash flow and net profit, but also lifts the value of the entire building.
Multifamily properties offer a variety of exit strategies for investors. You could just sell it. Or you could convert units to condos and sell them off individually for a lot more money. You could offer the building on seller financing terms, and create a new note asset. You could bring in partners with capital to partially cash you out. Or just refinance to recoup your original capital and expand again.
Single family property investing is great. There will always be a need for it, and it has its own benefits. Yet, there are advantages to multifamily property investing too. Many investors are now stepping up to this asset class. Keep looking for opportunities and watch for deals that could allow you to expand into this niche too.