Not sure of what type of real estate to invest in? There are a lot of options out there – from single-family housing to commercial retail spaces. However, multifamily real estate has been the one that is growing increasingly popular over the past couple of years. But what is multifamily investing. exactly?
To give you a better idea, we’ll give you a comprehensive review of multifamily real estate investments. We’ll explain just what it is and how it differs from single-family real estate. On top of that, we’ll dive into the advantages and disadvantages of multifamily investing and the steps you need to take if you decide to invest in multifamily real estate. Ready? Let’s get right into it.
Key Takeaways
- Multifamily investing is an investment strategy focused on residential real estate properties that have two or more housing units. Common types include townhomes, duplexes, apartment complexes, and condominiums.
- Multifamily rental properties are in high demand, making them a lucrative investment opportunity for multiple streams of rental income.
- While the returns of multifamily investing can be strong, investors should be prepared for higher initial investments, increased maintenance responsibilities, and the need to manage more tenant interactions.
What Is Multifamily Investing?
As a property services company, we feel that we’re in a prime position to explain multifamily investing.
When you invest in multifamily investing, you invest in properties with multiple units for multiple households to occupy. Multifamily properties are known for their potential to generate income because they involve multiple housing units, and with that, you get multiple cash flow streams at once. Also, when you do have vacancies, they can hurt less, since you can have other occupied units to keep your wallet stable in the meantime.
Types of Multifamily Properties
Whether you’re a beginner investor or a seasoned one, knowing the different types of multifamily properties you can invest in is essential for you to identify your goals and objectives. Here’s a quick rundown of some of the most common types:
- Townhomes: Includes duplexes, triplexes, and fourplexes. Smaller residential properties that require relatively less upfront investment.
- Apartments: Typically, one property with several housing units rented out to residents. Apartment units are generally affordable to rent, making them a popular housing option.
- Condominiums: These are generally high-rise housing buildings. Unlike apartments, condominium units are owned individually. These are perfect for individuals who want the benefits of homeownership and the convenience of shared communal spaces and amenities.
- Duplexes and Triplexes: While there’s more to it you should know, a duplex is basically a residential building with two separate living units, either side by side or stacked vertically, each with its own entrance. It offers a balance between single-family homes and apartments, often appealing to homeowners seeking rental income or multi-generational living. Meanwhile, a triplex is similar, but with three living units.
Pros of Multifamily Investing
Did you know that 36.1% of all the investment activity in the US, in total, is related to multifamily sales? Needless to say, this type of investing is popular for a reason. Let’s explore exactly why:
Cash Flow Stability
Like we said before, one of the biggest advantages of multifamily real estate over single-family housing is that it allows for multiple sources of rental income. Also, it cushions the impact of having vacancies. Imagine an apartment complex with 10 occupied units. Even if you have one or two tenants move out, you still get cash flow from your other residents. That gives you security.
Popularity of Renting
While homeownership remains the American dream, renting has been the popular choice for those looking for more flexibility and affordability. To give you a picture, the average mortgage payments cost roughly 38% more than the average rent. With this price gap, multifamily residential properties have bigger capacity to provide housing for eager tenants.
Resiliency in Fluctuating Economies
Demand for housing remains constant even during economic downturns. And, like we’ve established, renting tends to be more affordable than owning, so it’s a prime option for people in those times. That’s why multifamily housing often maintains a relatively stable occupancy rate even as the occupancy for other types of real estate declines. We’ve seen it for ourselves. This resilience can protect you against market volatility and provide consistent revenue even during recessions or other downturns.
Cons of Multifamily Investing
While multifamily investing offers an array of benefits, it also comes with some risks, challenges, and drawbacks. Knowing these will give you a more well-rounded idea of what the multifamily investing life entails:
Greater Upfront Investment Requirement
Whether you’re purchasing a multifamily property or building one from the ground up, multifamily real estate requires a significantly higher initial investment. From what we’ve observed, most investors need to put up to 20% of the total cost for the down payment. So, you need to be ready to shill out your money right upfront.
Higher Maintenance Costs
From simple lawn care to in-depth HVAC cleaning, the maintenance costs for bigger buildings are relatively higher. Simply, larger properties with more residents mean that the property will go through more wear and tear, and you have to pay more–and more often–to keep it in top condition.
Tenant Management
While having more tenants means more income, it also means that you have to handle more people and their individual concerns. It is a huge responsibility that demands a lot of time, effort, and resources, not to mention the stress that comes with it. In this case, partnering with a property management service provider can make it easier to handle.
How to Start Investing in Multifamily Real Estate
Multifamily investing might sound like a nice idea on paper but executing that idea is a whole other matter. So, let’s get into a blueprint of how you can get started:
How Bay Property Management Group Can Help
Both new and seasoned real estate investors can benefit greatly from multifamily investing. Its ability to generate multiple streams of rental income, along with the strong demand for rental housing, attracts investors from all directions.
However, multifamily investing comes with its own set of challenges and risks. This is where we at Bay Property Management can help. As professionals who manage over 6,000 properties, we can analyze your target market, develop marketing strategies for various social media channels, conduct property inspections, handle legal compliance, and more. Ready to take the next big step? Talk with us today to get started.
