There’s truly no one-size-fits-all approach to real estate investing. Just about any kind of property can be a profitable addition if managed well. However, today we’re going to look at some of the key advantages of investing in multifamily properties – that is to say any residential property with at least two or more rentable spaces.
Easy to manage
Multifamily properties tend to be much more straightforward to manage due to their consolidated nature. Compare 10 individual apartments spread throughout a city to a single 10-unit complex. In the former scenario, the landlord or property manager(s) must zip around town for routine service, showings, and the like. This inconvenience only grows as the distance between units or number of units increases. With a single multifamily location, everything is managed at one physical address, greatly reducing the tangible and intangible costs of property management.
Easy to finance
While multifamily homes are much more expensive than a single-family home – they are also much more likely to be approved for a bank loan. Lenders are all about reducing risk of borrower default and property foreclosure, therefore they naturally favor lower-risk investments. In the world of real-estate investing, multi-unit residential property is considered to be about as “safe” as you can get. Even during economic recessions, people need a place to live. As such, multifamily residences tend to generate strong, steady cashflow year-round. With multiple units, a property can support partial vacancy and still generate considerable income month to month.
On the other hand, a vacant single-family home becomes an immediate liability until it’s occupied again – a process that could take months. Financing a single multi-unit property is also cheaper and easier than acquiring the same number of units split up among different properties. Instead of multiple loans and deals to arrange, you’re dealing with a single loan and acquisition. No need for multiple closing costs and commission payments. The same benefits apply to insurance. Instead of multiple policies for different properties, only one policy is needed to cover all units within.
Flexible and versatile
Multifamily properties start to shine as the number of units increase. With larger residential complexes, investors can really start to leverage the tax benefits specific to real estate investing. Depreciation, for example, can become very advantageous when combined with a cost segregation study. While a cost segregation study could be performed on just about any investment, larger, multi-unit properties will see a much greater return on the cost to run the study. In a similar vein, it may not make financial sense to hire a property manager or management company to look after a single-family home.
The cost of outsourcing management may very well wipe out the monthly income generated from ownership. With a multi-unit property, it’s far more likely that cashflow will be strong enough to support third party management. This is where multifamily investing starts to click for people. You may need to pay more up front and deal with more tenants, but the significant increase to cashflow opens up a bevy of financial advantages that can seriously compound in your favor over the long haul.
Anyone serious about real-estate investing should definitely consider multifamily investments. With multiple property sizes and investment strategies available, even a beginner investor can start slow and roll their portfolio up into larger properties over time. If you’re interested in the process of securing financing for a multifamily property, contact us today!