What Is Multifamily Real Estate?
Multifamily real estate is a building with multiple housing units that different families may live in. Also known as a multi-dwelling unit, the term multifamily real estate is often used to describe traditional apartment complexes, duplexes, townhouses, triplexes, and any other property with multiple living spaces available for rent.
Benefits of Multifamily Units
Investors tend to hear about multifamily real estate and assume it’s too hard for them to manage as an investment. However, this is not true. Multifamily real estate investing can be lucrative with the right strategy. It’s all about taking the time to understand how this segment of the market works. Once you do this, you will understand how to take advantage of multifamily units as an investment. Real estate investing is all about learning and gaining experience.
While multifamily real estate investing is challenging, it is also incredibly efficient in generating a positive return for those putting in the hard work.
Let’s dig deeper and see what the benefits are when it comes to this type of housing.
1) With Multifamily Real Estate You Can Live in One of the Units
Yes, as an investor, you can take the opportunity to set up shop in one of the units and live there. This is a great way to maintain control of the property and ensure you have a good feel for what is going on at all times. It is also a good way to remain in contact with the tenants and make sure everything is transpiring as you want it to. A single-family unit doesn’t offer this type of control, which is why most investors start to become distant and second-guess what they are doing.
In this case, you can simply move onto the premises and stay there for as long as you want.
2) Reduced Maintenance Costs with a Multifamily Real Estate Unit
Since most of the amenities are shared due to it being the same building, you can make more money while reducing the associated maintenance costs with a multifamily unit. For example, with single-family units, lawn care can become cumbersome and expensive. With a multifamily real estate unit, you have lower associated maintenance costs.
3) Reduced Risk of Income Going to Zero
Since there are multiple families in the building, it’s a lot easier to make sure your monthly income doesn’t go to zero. Since the average multifamily real estate property is going to have a reoccurring revenue setup, this means tenants will only leave when they have to and will renew on a set contractual basis. If you do lose a tenant, you can easily make the most of the other income streams coming from the same building while you look for a replacement. This is far easier than having to manage an empty single-family house because no one is living inside.
4) Better Financing
Yes, it is a lot easier to finance multifamily properties, which is why many investors enjoy the value that comes from going down this path. Since multiple families are residing inside, you can leverage the other units to make sure you are bringing in enough money. This is a great way to ensure you are reducing the general risk to your bottom line while still seeing the property’s value rise. This is one of the biggest advantages of utilizing a multifamily real estate investment property.
A lot of the times property owners will rent out the units and then use one of them to pay off the mortgage. This simplifies the risk on your end from a financial perspective. Rather than paying out of your pocket, why not leverage the tenants and use their funds to pay for the mortgage while still making a bit of additional money from the others? This is one of the finer attractions of multifamily housing and why it works so well when done right.
5) Easier to Scale with a Multifamily Property
Not being able to scale your investments is a common concern when researching investment properties. Fortunately, multifamily real estate is all about growing your portfolio with a minimum amount of risk. Most people worry because they don’t want to juggle multiple tenants but that’s where the value lies.
As soon as you start to fill the units, you are going to have more funds to spend on additional multifamily properties.
This is not as easy with a single-family unit where you are going to have to wait longer to get enough funds for another mortgage. This is why more and more investors start to lean towards this type of property as they gain experience. They start to weigh the pros and cons, which is when they realize the underlying advantages of utilizing this type of investment strategy.
6) Single Loan for All Units in the Multifamily Complex
Since it is one building, you are not going to have to juggle multiple loans for different single-family houses. Imagine having to set up six mortgages for six different properties under your name. A lot of investors don’t want to deal with this hassle and prefer going with a single mortgage for multiple units. This is far easier and keeps things simple as you look to organize your finances.
Multifamily Real Estate Financing
One of the biggest concerns real estate investors have is whether or not they’re going to get the mortgage needed to invest in a multi-family property. It’s a legitimate concern and it’s something you should always keep in the back of your mind. However, it’s also not as bad as an investor thinks!
It’s all about taking the time to speak to multiple lenders and finding the right rate for your situation. Since it is just like any other building, you are going to have the opportunity to set up a mortgage and it is likely going to go through. Investors shouldn’t worry about dealing with multiple tenants because it’s only going to grow your portfolio.
To the surprise of many, the real issues start to pop up when it is time to find a mortgage for multiple single-family properties. This is when lenders start to shy away because of the added risk of multiple properties in different locations with different situations.
What is the attraction for banks when it comes to multifamily real estate?
It is as simple as knowing there is an increased chance of making more money each month. Since you are going to have access to multiple units, this makes it easier when it is time to convince the bank to provide funding. They are going to appreciate the idea of not having the property go to zero-income because the tenant has left. This is a concern they often mention with a single-family property. In this case, there are several units at play and there are always going to be tenants as long as you manage the property well. In their eyes, this is less risky and the right way to invest.
If you feel the bank isn’t offering a good rate on your multi-family real estate property, you are welcome to take a look at other options on the open market. They will make sure the loan is a good one and it leads to a valuable investment over the long-term. It’s all about shopping and staying patient.
Multifamily Real Estate as an Investment Property
Multifamily real estate investing is powerful and offers incredible value over the long-term. It’s all about creating a plan, implementing the right financial processes, and making sure to compare lenders. As long as you do this, the investment journey is going to be a successful one with multi-family housing.