The Pros and Cons of Investing in Multi-Family Properties

Multi-family real estate properties have become increasingly popular in recent years. They offer a variety of benefits, such as convenient scalability and the ability to rent units to different tenants. But what are the pros and cons of multi-family properties? Here’s everything you need to know.

The Pros of Investing in Multi-Family Properties

Cash Flow

With more units to collect rent from, you can expect to see a larger cash flow when investing in multi-family properties. Assuming vacancy rates don’t fluctuate, you’ll stand to make more of a profit with a multi-family home than you would with a single-family home. Even with one or two vacant units, you’ll still make enough profits to ensure stable cash flow throughout the year.

Long-Term Value

Multi-family properties are priced according to the income-generating potential they have, considering they are bought and sold primarily as forms of investment. Single-family properties are exposed to price fluctuation according to neighborhood changes, giving them a more volatile market. Instead of being priced based on what families find appealing, multi-family properties are priced almost exclusively based on how much income-generating potential they have. Multi-family properties experience more stable growth potential as their long-term value is not as dependent on external factors.

Competition Mitigation

When placing a bid on a multi-family property, it’s common to experience less competition than a single-family property due to the more complex entry way into the multi-family market. Multi-family properties tend to be more expensive to purchase and manage than a single-family property, so it’s likely that you'll have less people competing with you on bids.

Risk Mitigation

When you purchase a multi-family property, you face less risk when it comes to tenants since you’ll be renting out several units instead of one. The risk of total vacancy is low with multi-family properties, even if one tenant moves out you still have your other tenants to help fill the cash void. With proper screening, it’s highly unlikely you’ll have multiple problem tenants at once. Multi-family rental units are always in high demand, making for easy risk mitigation in the real estate market.

The Cons of Owning a Multi-Family Investment Property

Larger Upfront Expense

There’s no denying that the upfront cost of a multi-family property is more than a single-family property. While lenders are typically happy to work with investors, you’ll still have to come up with a down payment for the property. Because of the large upfront costs, many investors struggle to come up with enough capital to put down on a multi-family property, limiting their exposure in the market.

More to Manage

Even if you have enough capital to put down, you’re still faced with the fact that a multi-family rental property more to manage than a single-family property. Your work is far from over, managing multiple units is a huge responsibility that will require generous amounts of time, attention, and maintenance. If you’re a first-time investor, you may simply not have enough time or expertise to take on the landlord responsibilities of multiple units.

Availability

Many investors find the lack of availability for multi-family properties to be a common occurrence in the market. This means you’ll have a harder time finding the ideal property and your options are far more limited. On the other hand, there is an abundance of single-family homes on the market with more options to choose from that better fit your strategy.

Regulations

A hidden cost of owning a multi-family rental property are the regulations you are now accountable for. On top of the regular landlord regulations that rental properties are subject to, there are regulations pertaining to multi-family properties that are even stricter. Before investing into a multi-family property, be sure to research the local and state laws your property is subject to.

RCN Capital

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 todayto discuss your next real estate investment.