A multifamily property is a property that can be rented by multiple tenants at a time. It contains more than one residential unit, each with its own bedrooms, bathrooms, and more. Compare this to a single-family home that can be rented by only one tenant (or family) at a time.
As a real estate investment, the most common type of multifamily property is an apartment or condominium, as these are properties with multiple units. Multifamily properties can be as small as a two-family townhouse or a tall condominium with fifty or more floors.
If you’re interested in investing in a multifamily property, seek the services of a real estate investment adviser.
Why Invest in a Multifamily Property?
Multifamily properties are a way for first-time investors to get their feet wet in the rental property pool. It’s also common for many landlords to purchase a modest multifamily property to rent and occupy at the same time. To put it simply, they reside in one unit and rent the other unit/s.
The reason for this is owner-occupied residences are more likely to qualify for more favorable financing, such as lower interest rates and lower downpayment. Plus, by living on-site, the property owner has the opportunity to oversee their investment on their own. This can result in an increase in cash flow, decreased costs, etc. A real estate investor can even purchase a property that they don’t intend to live in – instead, they can hire a property management company to oversee the day-to-day duties.
What About Properties With More Than Five Units?
Multifamily homes with five or more units will fall under the category of “commercial real estate.” Commercial real estate is generally eligible for a particular kind of financing, which typically costs more than residential real estate.
What are the Pros of Investing in Multifamily Properties?
There are many advantages to investing in multifamily properties:
- Cash Flow. As you might’ve guessed, renting to more than one family results in a greater cash flow. As long as the tenants pay on time, you can anticipate consistent rental income for years to come. Of course, you also need to lower your costs and set the appropriate rental rate, otherwise, you won’t be able to benefit from a reliable cash flow.
- Reduced Risk During Recession. Compared to other real estate investments, multifamily properties are considered “safer” investments. In case of recession, people will probably be more compelled to sell their houses and relocate to rental property. In short, when the economy slows down, the demand for rental properties tends to speed up.
- Reduced Vacancies. If your tenant moves out, you’ve still got other tenants to “fill the void”. That way, they can continue to generate the cash flow you need to manage the property properly. Plus, there’s a low chance that you will deal with “problem” tenants at the same time, so if one tenant fails to pay rent promptly, you can still count on the timeliness of other tenants.
- Consolidated Loan. If you’ve ever managed multiple mortgages at a time, you’re well aware of how difficult it is to deal with different loans and lenders. Fortunately, if you purchase one multifamily property, you wil only need to deal with one property’s paperwork. For example, if you got a duplex on a single mortgage, you’d only need to deal with one mortgage than you would with, say, multiple single-family properties. In short, it “consolidates” your loan.
- Passive Income. Want to generate cash flow without lifting a finger? Purchase a multifamily property and find a property management agent to whom you can delegate the day-to-day duties. It’s an excellent way to maximize your investment, even when you have little to no experience with property management.
- Diversity of Real Estate Investments. You have the freedom to cherry-pick your multifamily property from a wide range of real estate investments, such as duplexes, triplexes, and more. You can get a multi-family property to rent on a typical, year-long lease agreement, or buy a building in a college community if you want to target student tenants
What Are the Cons of Investing in Multifamily Properties?
Of course, there are also multiple tons of multifamily properties:
- Multifamily properties are more expensive than single-family properties. Though you won’t always pay twice as much for a townhouse as you would for a single-family house, costs can be a barrier to entry for multifamily properties with three or more units. Multifamily houses may be too pricey to contemplate if this is your first time investing in real estate, or if you’re short on funds.
- Property Management Demands. Every unit in a real estate investment translates to more time spent on day-to-day demands, such as maintenance, rent collection, etc. If you thought managing a single-family home was tough, wait ‘til you manage a multifamily home. Plus, if there’s something wrong with one tenant’s unit, things will certainly go wrong with the other units, too.
- Strict Laws. You’ll have to deal with a slew of rules and regulations on how you can manage your real estate investment. Compared to single-family homes, multifamily homes have even more stringent rules. You’ll need to understand the law, otherwise, you likely will risk penalties.
- Due to the cost, these properties are ideal for seasoned real estate investors who can pay upfront. With that said, your competitors are likely more experienced than you, which can make property management more challenging.
Find a Property Management Company For Your Multifamily Property
A multifamily real estate investment can be time-consuming to manage and has a high barrier to entry, but it can also be a valuable asset. Besides, by delegating your duties to a property management company, you can continue to generate income without doing a thing. All of your day-to-day obligations will be handled by your property manager, including collecting rent, responding to maintenance matters, and more.
Partner with Luxury Property Care today for expert property management in South Florida. We work with you to find, fill, and facilitate all activities done on your multifamily property. Call us at (561) 944 – 2992 or complete our contact form for more information.