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It’s no secret that multifamily properties are an incredibly lucrative asset to have in your investment portfolio. This asset class offers some impressive benefits to investors, and that’s why they are always in demand on the open market. If you’re able to secure the purchase of a multifamily home, you’ll find that that along with providing consistent monthly income, they can even be easier to manage than a portfolio of several single-family homes. Have you been considering adding a multifamily to your investment portfolio? Here are a few key reasons why they make for such great investments.
1. Higher Cash Flow Potential
The most apparent benefit of investing in multifamily homes is having additional income from multiple, cash-flowing rental units. Often times, the added cost of investing in a multifamily home is far less than the cost of purchasing separate single-family properties. Meanwhile, they provide you with roughly the same amount of rental income, which means multifamily properties have some very attractive cap rates. They typically fall in the 4 to 8% range, while single-family homes generally range from 3 to 5%. This means you can recoup your initial investment and build equity faster than with a single-family property.
2. Reduced Vacancy Risk
Vacancies are inevitable when managing rental properties, but the great thing about multifamily homes is that you still have other rental units providing you with steady income. In most cases, you’ll be able to use this income to cover a large portion of the property’s operating costs, if not all of it. A reduced financial strain can be a huge benefit which opens the opportunity for you to make renovations and value-adds while the unit is vacant. Less pressure to find tenants also gives you some leeway with decision making, allowing you to take time to conduct due diligence and find great new tenants.
3. Economies of Scale
One of the major financial benefits of investing in multifamily homes is lower management costs due to economies of scale. Repairs made to a property often affect multiple units, and the same goes for upgrades and renovations. Also, you can make purchases of supplies in bulk to save on maintenance costs. Conversely, managing a portfolio single family rentals can be more expensive, and there are additional costs like transportation to consider as well.
4. Financing Benefits
You may not know that it can be easier to finance a multifamily home than a single-family property. As we mentioned, these investments have solid financials backing them, and reduced risk when compared to most other real estate properties. This means that multifamily homes offer a very stable return on investment, which is exactly what most lenders want to see when you apply for financing. However, they will also expect you to have experience managing rental properties, as there is an added workload that comes with managing multifamily homes. Take the time to compare multiple financing options, such as hard money or private loans, in order to find the best fit for your investment.
5. Appreciation and Value-Add Opportunities
There is a hidden benefit to investing in real estate, and that comes in the form of appreciation. Most properties tend to grow in value over time, and because of the inherent demand present for multifamily homes, they are one of the strongest appreciating asset classes. This appreciation can even be combined with your existing equity in the property when making use of a refinance loan. Additionally, if you’re looking to boost your property’s cash flow, you can make renovations to older or outdated units to increase demand for them. Be sure to make use of vacancies, as they are an ideal time to perform these upgrades.
RCN Capital
The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property?