8 Reasons to Invest in Multi-Family Homes
For those interested in investing in real estate, I urge you to do your research and understand what your goals are in order to determine what route you need to take. In residential properties, there are two types that generally come to mind. The most common and a major goal of most people is a single-family home. The second and less thought of by the general population is multi-family properties.
Single-family homes, to a large portion of individuals, are typically viewed as the ultimate goal when it comes to residential properties. The American Dream for years has been to start a family, purchase a home with the white picket fence, and to grow old in it. While this has been true for decades, there is a different narrative that the new generation has come to live by. More people have ventured into being entrepreneurs and are searching for that freedom to do whatever they want when they want. While the multi-family real estate is not brought up as often in discussions when you think of a first real estate purchase and is viewed as second-fiddle to single-family homes, this is something that is highly debatable.
Here are 8 reasons why it is worth looking into multi-family investing.
- Passive Monthly Income
One of the driving factors behind investing in multi-family homes is that it generates monthly income without much work. Something that is not going to change is: rent is always due. You can depend on the rent coming in monthly to exceed your mortgage payment and leave some extra money in your pocket. It’s even possible to live in one unit and have the others paying for all of your expenses each month.
- Less Competition For Purchases
With less competition in the market, comes better deals for buyers. The average person is considering the purchase of a single-family home with their first real estate purchase, while the market of people considering making an investment into a multi-family with their first purchase is significantly smaller.
- Freedom to Move at Will
With single family homes, typically the feeling of MY HOME is associated. While that feeling is amazing, it ties you down to one location even once the picture of your dream home changes. Even if someone decides to rent out their single-family home, when it goes vacant, the owner is responsible for all the payments. With multi-family properties, the owner isn’t tied down. At any time the owner can make a move and still count on that rent payment from the tenants every month.
- Flexible Financing
It is often true that multi-family homes are more expensive than single-family ones. It is also true that there is less competition in the market for multi-families and in addition to that, they generate income when single family homes do not. Once above four units, multi-family properties require a commercial loan. Commercial loans take into account the cash flow that the property will produce and are more flexible with financing.
- Better Value per Dollar
When you think about it in terms of the overall purchase price, a single family generally will cost less than a multi-family. When you think about it in terms of units, multi-family homes allow you to purchase more for less. A single-family home is considered one unit, while multi-family homes allow you to acquire more than one unit at a time for a much better price per unit.
- Easier to Increase Value
The more income that a property brings in, the higher its value is perceived to be. Because multi-family properties have more units, there is more control over how much there is to be made per unit. By managing the property in the most efficient way possible to cut expenses and keep a high occupancy rate, the income produced will remain at optimal levels. If your property is considered to be in a desirable location, you can expect the value to increase.
- More Tenants
One of the major benefits of investing in multi-family properties is less risk because there are more tenants. While some could view this as a potential problem, the reality is that when you have more units, the impact of one vacancy isn’t as harsh. Unlike single-family homes where income is lost when the home is vacant, multi-family properties have multiple units which in turn reduce the loss for the owner.
Rather than purchasing individual properties one or two per year and slowly adding to a portfolio, multi-family properties present the opportunity to acquire a number of properties in one transaction. Multi-family properties represent the definition of scalable. They are ideal for someone looking to grow their investment portfolio to a larger level.
Again, for those interested in investing in real estate, do your research and decide what it is that you look to accomplish. While each route offers their own advantages and disadvantages, each side represents a different long-term exit strategy for investors.This post is not to throw any shade on single-family homes by any means and I will go over some of those benefits in a separate post. As I said, each investment strategy is based on the individual and what they intend to accomplish. This is more so to provide foundation and insight. For those considering taking the next step and investing in real estate, it is important to understand what your goals are in order to make the best financial decision for you and your family.