It’s only natural for a real estate investor to want to explore investing in multifamily rental properties sometime throughout their career. Many investors prefer these properties for their income potential and reduced vacancy rates, among other benefits. Need some help finding a property that fits your investment strategy? Here’s the ultimate guide to multi family real estate.
What are Multi Family Rental Properties?
A multifamily rental property is a single real estate property that is divided into multiple housing units. There are large and small multifamily properties, ranging from large apartment complexes and condominiums to Duplexes, Triplexes, and Quadruplexes.
In a sense, owning a multifamily property is like managing several properties that you can lease separately to different renters. The ability to leverage a property to gain multiple streams of income is why multifamily properties are preferred by new investors in the real estate market.
What are the Advantages of Investing in a Multifamily Home?
Bigger Cash Flow
A single-family property only generates a single stream of income, while a multifamily property generates several streams at once. This innovative opportunity is what lures investors into purchasing multifamily properties. Some investors may choose to live in one of their multifamily units, which can also allow capital to be freed up and invested into other projects.
More Control Over Value
When you own a multifamily rental property, you have more control over the total value of the property since you can tweak how much income the property receives. These investments are generally valued higher than single family homes, especially since those valuations are dependent on comparable sales.
Larger Pool of Tenants
With a multifamily rental property, you have a larger pool of buyers which reduces your investment’s overall risk. Unlike a single-family home where income is absent when the home is vacant, multifamily rental properties have several units which can alleviate the economic loss of vacancies.
Multifamily properties allow for more scalability since you are acquiring multiple rental units at once rather than purchasing one property at a time. Multifamily rental properties are perfect for the investors looking to grow their real estate investments and take their business to the next level.
What to Look for When Investing in Multifamily Properties
When you’re looking for potential multifamily properties to invest in, you should always consider the location as a top priority as this is generally the most important criteria for tenants. When researching different locations, investors should look for high growth, high-yield areas where properties are in high demand.
The Total Number of Units
The total number of units your property has will be a major factor when determining its value. For an aggressive investor with experience, you may find that investing in an apartment complex or condominium may offer you the best return. On the other hand, beginner investors should focus their real estate search on three property types: duplexes, triplexes, and quadruplexes. These types of properties offer the most upside and least amount of risk, convenient for a beginner investor.
The Potential Income
The potential income a property can accrue is what you’ve had in mind since beginning your research in multifamily properties, most likely. Market research can help determine the income a property can accrue; a conscientious investor takes everything into consideration and practices due diligence when determining the potential income of a property.
Every investor’s financial situation will differ when investing in real estate, therefore it’s common for investors to rely on different forms of financing when purchasing their multifamily property. Hard money lending is a common financing option, given that these lenders are not connected to federal regulations and generally offer more flexibility with lending terms. If you are thinking about getting a hard money loan, it’s important to keep in mind that lenders will look at these three components:
- Your credit score
- Your debt-to-income ratio
- Your down payment
Some investors may live in one unit while renting out the others, which needs to be considered when determining the costs of your property. If you decide to live in a unit, you may qualify for owner-occupied financing.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.