Investing in real estate has become a great alternative for people who don’t want to deal with the volatility of the stock market. Investing in real estate propels investors to be more active and play a crucial role in the economy’s growth. Today, the idea of passive investments managed by a third party is getting old.
One of the hallmark aspects of investing in real estate is that it allows investors to tap into various strategies to ensure high ROI. You may not be aware of it but many investors continue to leverage multi-family investing to create and maintain a billion-dollar fortune.
Investment in commercial and residential properties has skyrocketed in the last few years. And why wouldn’t it? Read on to learn more about multi-family real estate investment, analyzing different opportunities and the main reasons to invest in multi-family homes in the U.S.
What Makes Up Multifamily Investment?
Multifamily investing involves purchasing multi-family real estate properties like condominiums, apartment complexes, and multiple housing units for rent. Today, investors understand that multi-family investments can improve their cash flow. From the perspective of real estate investors, multi-family investing has become a popular and practical option in 2022.
Multifamily properties or housing involve multiple units within a single or group of buildings. Multifamily housing boils down to major factors like construction style, involved units, and amenities. In a dynamic real estate landscape, duplexes, triplexes, townhomes, and apartment complexes all fall under the umbrella of multi-family real estate housing.
What’s interesting is that investors can target specific markets to acquire and manage different multi-family real estate properties. Mainly, it involves low-income residents, affordable housing for young students, and luxury renters. However, there are specific types of multi-family housing that qualify for government subsidies.
In short, if the housing property has four or fewer units, it’s a residential property. But if the building has more than four housing units, it’s a commercial property. Remember that the total units impact your investment and expected rate of return.
Top 12 Reasons to Invest in Multi-Family Homes
In 2022, investing in multi-family rental properties has become a standard investment strategy for many investors. And that’s because these investors understand that investing in multi-family units is the best way to generate additional income and increase the market value of the property.
Unlike single-family housing units, multi-family real estate properties have fewer entrance barriers. And this motivates investors to build a solid portfolio of multi-family units. Today, there is more than one reason to invest in large apartment complexes.
Here are the 12 essential reasons investors should consider before investing in multi-family properties.
1. Strengthen Market Position
When you invest in multi-family real estate – it gives you more control and power to manage properties. Sure, investing in multi-family real estate makes financial sense, but it also strengthens your market position. For instance, many real estate investors find it tiring to manage their properties.
In the case of multi-family property – the owner can get the help of a property management firm to take care of the daily rental operations. Also, investors who just own one single-family apartment cannot properly avail the services of an external property manager. Besides, the money generated by investing in multi-family properties every month gives owners more wiggle room to perfect their property management process and cut back on extraneous costs.
2. High Price Point but Easier Financing Options
It is true – multi-family real estate properties are expensive, and investors have to be risk-driven to invest in the first place. On the bright side, high-valued multi-family homes are easier to finance. Mostly, the cost of buying an apartment complex is much higher than the usual cost of buying a single-family unit. Still, acquiring a multi-family property serves as a solid investment for investors.
On the surface, it may seem like financing options are more flexible for acquiring single-family homes. In reality, there is more flexibility in buying multi-family properties for investors. Banks understand that multi-family properties help investors generate strong monthly cash flow.
For instance, when a 10-unit apartment complex has a single vacancy – it would still represent 10% unoccupied space. Consequently, there is a lower risk of foreclosure for a multi-apartment building than for a single-family rental unit. All these elements also make investing in multi-family homes less risky than in single-family units.
3. Opportunity to Grow Real Estate Portfolio
Ordinarily, it takes a lot of time to grow a robust real estate portfolio. But once investors invest in multi-family properties, it takes less time to do so. In fact, building a growth-driven real estate portfolio at a faster pace is one of the main reasons that make investing in multi-family properties attractive.
In a broad sense, investing in multi-family real estate is ideal for investors who want to build a large portfolio of multiple rental units. The truth is that it is much easier to buy a 20-unit multi-family apartment complex than to acquire 20 single-family properties.
Investing in multi-family real estate also cuts out the need to open separate loans for every property. Buying a single building with 20 units helps investors avoid the potential hurdles and downsides of acquiring several single-family units.
4. Consistently High Demand
Even amidst the pandemic crisis, the real estate industry maintained significant growth. And multi-family real estate properties provide the most appropriate and practical housing options to people who want to be part of the rental market. It is one of the main reasons most builders want to make long-term investments in multi-family properties.
In the U.S., a significant chunk of the population now leans towards multi-family real estate properties. And that’s because the benefits of owning multi-family housing extend beyond easier financing and market recognition. Instead, it allows multi-family building owners to shift back and forth and further diversify these investments. For instance, if a multi-family housing building has a great pool, security system, playground, gym, design, infrastructure, and additional amenities – it would serve as an incredible investment.
The projected demand for multi-family properties will continue to increase in the coming years. Generally, factors like renting preferences of millennials and Gen X play a big role in how fast the demand for multi-family properties will increase. Nonetheless, multi-family properties provide a higher cost of ownership than single-family units.
Predominantly, you may have noticed that the constructed multi-family properties are close to hospitals, supermarkets, schools, etc. As a result, it creates more accessibility to move back and forth between places. And once multi-family buildings add more features – it leads to a significant surge in demand. Ultimately, it’s the flexibility and stability of owning multi-family real estate properties that draw the attention of most investors.
5. More Affordable Options
In 2022, the construction of residential multi-family real estate properties has become more cost-effective than the construction of single-family housing units. Investors can now take a cost-effective approach to invest in multi-family real estate properties. Even if the ownership price decreases, it will still bring in a stable monthly income, generate more revenue, and ensure stable cash flow.
After covering maintenance costs, repairs, and management fees, investors manage to save on costs with multi-family real estate properties. Geographically, most markets offer financial feasibility to multi-family property owners. In fact, investing in multi-family properties maximizes the exposure of investors and creates more opportunities to tap into multiple revenue streams. And investors can reap these benefits for more than one economic cycle.
6. Tax Perks
One of the main reasons to invest in multi-family properties is to reap the tax benefits. In fact, there are several tax incentives attached to acquiring multi-family real estate. However, you will have to work with a professional CPA to understand the cause and effect of changing tax laws. The good news is that the U.S. government provides many tax perks to investors looking to buy multi-family properties. Today, different real estate builders leverage different tax benefits.
Once you acquire a multi-family real estate property with various rental units – you can count on tax deductions on expenses directly related to the multi-family housing unit. If you intend to invest in multi-family property and have no idea about the specific tax benefits in your state, don’t hesitate to get the help of a tax expert.
7. Positive Impact
In the real estate market, the impact and response of investing in multi-family properties continues to be positive. Even on a global scale, investing in multi-family apartment complexes has become a clear choice for real estate investors. After all, financing options, low construction costs, and a simple management approach encourage more investors to invest in multi-family properties.
Plus, consistent growth and positive impact of multi-family real estate properties increase the demand for various goods and services. And this, in turn, helps workers and residents the most. Today, multi-family properties have become integral to support progressive housing initiatives and provide more opportunities to the potential workforce in the real estate sector. With increased demand and positive market response, wise investors should be at the forefront to leverage the best multi-family investing opportunities.
8. Low Investment Risk
There are several risks attached to investing in multi-family housing units. In comparison, the investment risk is significantly lower than acquiring non-multi-family properties. Usually, the vacancy rate increases the risk of investment for multi-family real estate properties.
But other than that – property developers and real estate investors should be aware of the low investment risk in owning multi-family units. In terms of investing in a specific multi-family housing unit – a lot depends on the location. Research shows that the returns are usually higher for investors who acquire multi-family real estate property. With low investment risk – investors can also get suitable loan opportunities.
9. Simple Property Management
It can be daunting to manage ten independent single-family housing units. However, managing a multi-family property with ten units is easier. In fact, this is one of the practical reasons many investors continue to invest in multi-family real estate. And when investors spend less time in property management – it frees up time to focus on more critical tasks.
Unlike a single-family unit – investors can outsource the property management to a firm. However, owners of multi-family housing can manage the property on their own by adopting a long-term approach. In addition, managing multi-family buildings does not create complications that property managers usually face in managing single-family units. For instance, in multi-family real estate properties, owners don’t have to deal with issues related to insurance companies, fulfilling complex obligations, and having several property managers.
The self-sustaining impact of repairs and maintenance alone makes the management of multi-family properties easier. Remember, multi-family housing units share similar features like parking, common areas, HVAC equipment, roofs, and walls. As a result, it allows owners to streamline repairing and maintenance tasks. Similarly, there is more transparency and accountability in managing multi-family housing units.
10. Long-Term Value of Multifamily Properties
Unlike other real estate properties – multi-family housing units can hold their value for a long time. With each passing year, the value of real estate properties also increases. And when you take into account the high ROI of multi-family housing units – it becomes more apparent that investors can increase their revenue stream over time.
Not to mention, increased demand has already made multi-family housing units highly valuable. Additionally, amenities and improvements in the multi-family housing units further increase their market value. In a standard multi-family housing unit – tenants are responsible for maintaining the rental unit in perfect condition.
And if there is severe damage to the property – owners can always cover the repair and maintenance costs using the tenant’s deposit. In any case, you can expect the value of multi-family housing units to hold up for years. Since rental rates continue to increase, multi-family property owners can expect more than just an average growth.
11. Generate More Revenue and Ensure Stable Cash Flow
Increased cash flow is one of the perks and reasons to invest in multi-family buildings. Unlike a single-family unit that can only generate the rent for a single month, multi-family housing units generate higher revenue and significantly increase investors’ income. Since multi-family housing units have a solid reputation in the market, investors can expect to receive a consistent and high revenue stream.
Most investors are now aware that investing in multi-family properties is the best way to receive a stable monthly income. In multi-family housing units – the cash flow is secured via a lease and stems from tenants. Federal and state laws set the lease terms and direct specific responsibilities for tenants and owners. The idea is to give tenants little to no reason to break the lease terms. It provides added security to investing in rental-based multi-family housing units.
12. Environmental Sustainability
That’s right - multi-family housing works in favor of the environment. In fact, multi-family housing eliminates the need to construct single-family units that impact the environment. Many investors have started to see investing in multi-family properties as a way to create a sustainable and eco-friendly future for upcoming generations.
Since multi-family real estate properties take up less space, it helps preserve the natural geography. Unlike single-family homes, multi-family buildings allow people to maintain an eco-friendly and shared living. Of course, the eco-friendly construction of houses is not a new phenomenon. Nevertheless, multi-family properties have changed the way people view healthy living standards and care for the environment at the same time.
Investing in multi-family properties is a smart way for investors to diversify their real estate investment portfolio. And most importantly, it gives real estate investors more opportunities to generate a stable income. With incremental and added value alone, a multi-family real estate property can multiply your current income. Besides, investing in multi-family properties has become easier than ever.
If you want to make smart deals and leverage the best market opportunities, you might have to seek the help of an experienced real estate investor. Still, it takes minimal effort to finance multi-family housing units, enjoy quick compound returns, and improve economies of scale. Like traditional stocks, investing in multi-family properties is a successful strategy for real estate investors.
In fact, real estate experts believe that collection from rental properties is the best way to accumulate wealth. To summarize, there are many reasons to own multi-family real estate properties. Whether it’s availing more financing opportunities or improving the overall property portfolio, investors can reap short-term and long-term perks of investing in multi-family properties.