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Multifamily rental properties provide many benefits to investors, and they’re easily one of the most lucrative assets classes in real estate. Their unmatched income potential scales as you include more units in the same property, and they have great appreciation potential to further increase your investment’s returns. They remain in constant demand by both investors and renters, leading to some healthy and growing cap rates. Multifamily rentals can even serve as a great way to diversify your investment portfolio and keep it resistant to inflation and market downturns. Have you been considering branching out into multifamily real estate? Continue reading to learn more about this rewarding asset class.
Understanding Multifamily Rentals
A multifamily investment can be any rental property that contains 2 or more separate, income-producing units. These come in a range of sizes and prices, from duplexes and triplexes to 50+ units apartment buildings. Generally speaking, singular investors stick to properties with 10 or less units. With housing availability and affordability remaining a problem in today’s market, many are choosing to rent over purchasing a home. This drives up both rental pricing and demand, which can make a multifamily home either a very good investment, or an expensive one. It’s important to do your due diligence and conduct market research if you are planning to invest in a multifamily home.
Benefits of Multifamily Rentals
The benefits of investing in multifamily rentals extend far beyond their consistent monthly income. Multifamily homes have some of the best appreciation potential out of any type of investment, and they remain in demand because people will always need places to live. This stability also makes them a very safe investment, and a good way to diversify your portfolio. Plus, managing multiple units under a single roof is often more cost effective than multiple separate homes. For example, you can benefit from economies of scale when it comes to ordering supplies and making updates to the property.
Building Wealth with Multifamily Properties
Multifamily investments offer a number of ways to build wealth for those that own and operate them. We already mentioned how multifamily homes tend to appreciate in value, but did you know that there are also major tax advantages to investing in multifamily homes? You can deduct many of the associated expenses including maintenance costs, property management fees, and mortgage interest. You may also take your saving further by conducting a cost segregation study, where you depreciate all the assets on your property over their usable lifespan. Rental properties can also serve as a great way to build equity, which can be pulled out of the property with a refinance loan to help you expand your investment portfolio faster than using your own personal funds.
Tips for Maximizing Your Multifamily Rental Returns
Like with any other real estate investment, you can set yourself up for success with multifamily rentals by performing your due diligence. Take time to plan your investment: research different markets and compare key data points to understand what makes for a good place to invest in. Be sure you are utilizing trusted sources like REiDEAL MASTER or ATTOM Data to obtain accurate data on local markets. Just as important as the market though is the location of the property. Generally, people will want to live in quiet neighborhoods that have good access to amenities like shopping areas or transportation.
How you choose to manage your property can also have an effect on your returns. In order to ensure tenant satisfaction and keep them staying at your property for longer, it will help if you keep in regular contact with them. This will allow you to address any issues they might have right away, and take care of crucial repair items before they balloon into costly fixes. Set up automated systems to take care of rental collection and requests. And strive to maintain a well-kept property that will attract new tenants and retain older ones.
Key Considerations
We want to end with a few final considerations for investors looking to get into multifamily property. You have a few options to choose from when it comes to financing a multifamily home, but know that it may be more difficult to be approved for a loan. As they generally come with larger dollar amounts, the lenders that finance these properties will want to see proof of financial stability on your part and ideally some experience with managing rental properties previously.
You can also choose to hire a property management company to handle tenant duties and maintain the property for you. This really only makes sense with larger properties and portfolios that contain several rental units. Be sure to compare the cost of such services to your bottom line to see if its financially viable for your investment strategy.
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?