multi-family investing

8 Reasons to Invest in Multi-Family Homes

It is wise for an investor to take an active role in growing their capital, rather than in a fund managed by someone else. Real estate investing gives you an opportunity to actively grow your wealth.

With real estate investing, you have a variety of strategies that you can successfully employ to prosper. When it comes to residential real estate, one can either invest in single-family homes, multifamily homes, or both.

Multifamily homes are an excellent way to get started with residential real estate investing. They offer owners a stable portfolio with high and consistent cash flow yields.

Every investment has its pros and cons. multifamily homes are no different. Nevertheless, they are the choice for most real estate investors. Let us find out why.

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What is a multifamily home?

A multifamily home is any residential property that is set up to accommodate more than one family living separately.

Types of multifamily homes

  1. Duplex. This is a two-story house with a different family living on each floor. In a similar fashion, a triplex or quadplex is a house with three or four separate units respectively. They share one front door but with separate entrances.
  2. Townhouse. In this home, two families live in one house that is separated by an interior wall. It is bought and sold separately with each having its own private entrance.
  3. Semidetached homes. This is a Single-family home that shares a wall with another home.
  4. Apartment complex. This is a  single structure with a minimum of five or more separate units. Residents often share common resources.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

reasons-to-invest-multi-family-real-estate

Pros of investing in multifamily homes

 #1: Projected increase in demand

Most people prefer renting a home or apartment due to a range of factors. This includes the renting habits of millennials and baby boomers who continue to drive demand for apartments.

Additionally, the current economic crisis due to the pandemic has delayed homeownership plans by potential home buyers. This has resulted in many people opting to rent hence the increased popularity of multifamily homes.

  #2: Favorable performance amidst economic uncertainty

Multifamily homes are considered a safe investment. This is because they tend to remain stable during recessions compared to other real estate asset classes.

During economic downtown many people are forced to sell their homes and move into rental housing, this creates a prolonged demand for multifamily homes.

Moreover, they have a shorter leasing cycle, giving them the flexibility to adjust more quickly to changes in the market cycle.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

 #3: More cash flow potential

Multifamily homes generate greater monthly cash flows compared to single-family homes. As an investor the more cash flow you have the easier it’s to reinvest and grow your portfolio.

Rents are predictable and in strong markets, you can re-lease units to ensure continuous steady cash flow.

#4: Lower Vacancy risk

In a single-family home if you have a vacant unit it will be an uphill task to cover your mortgage costs and other maintenance expenses.

This is not the case with multifamily homes. Even if one or two units are vacant, the other units will provide the financial cushion you need as an investor.

 #5: Diversity of product types

Multifamily homes are an estate asset class with several different product types and myriad ways in which to invest. You can invest in duplexes, triplexes, quadplex townhouses, or an apartment complex.

They provide tremendous optionality given the many product types. As an investor, you get to choose the product type that meets your preferences.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

 #6: Easier to finance

The cost of acquiring a multifamily home is significantly higher than that of a single-family home. However, securing financing for a multifamily home is much easier.

Lenders perceive multifamily homes as sound investments because the risk is spread across multiple units. The higher the number of units, the lower the impact a single vacancy has on monthly income.

 #7: Tax benefits

Multifamily real estate is highly tax-advantaged. You can write off most repair expenses and interest paid on mortgage as business expenses.

 #8: Easier to increase value

Multifamily homes are valued on the net operating income they generate. This implies that any value-added work that increases rent will increase the net operating income.

A bigger net operating income will consequently increase the market value of your multifamily home.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

 Cons of investing in multifamily homes

 #1: Cost more

Depending on where you are looking to invest, multifamily homes are more expensive than their single-family homes counterparts.

This is one of the greatest barriers to you as an investor if it’s your first investment property or you are low on cash.

#2: Management Intensity

Each unit translates to more management responsibilities. A multifamily home means dealing with multiple tenants simultaneously with different concerns

#3: Demand for experience

Multifamily homes, due to their advantages, tend to be investment targets for highly experienced investors.

This can create intense competition and effectively shut many beginner investors out of the market. As a first-time investor, you will have to partner with experienced investors to guide you.

Bottom line

Any type of real estate investment will carry its own set of risks and benefits. Owing to the many benefits that come with multifamily homes it is a lucrative investment that can help you realize your financial gains.

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