Real estate has proven to be a better investment for those who prefer to have an active role in building their wealth, rather than passively putting their money into a fund managed by someone else. What’s better about real estate investing is that there is more than one strategy that can be successfully used.
For example, you can build a fortune by developing various residential and commercial properties, or create wealth by slowly acquiring an income-producing portfolio of rental properties.
Every day in America, real estate investors are making millions of dollars by investing in rental or multifamily properties, or just purchasing properties that need some work and renovating them to later sell to a new owner for major profits on their initial investments.
Investing in Multifamily Properties
If you want to have an additional source of income, then multifamily property investing is the way to go. Not only will you have additional cash flow, but also a slow and steady appreciation in the value of your portfolio. By now, you should know there are two main types of properties that one can invest in single-family and multifamily.
Single-family properties are pretty self-explanatory: they are residential buildings with only one available unit to rent. Multi-family properties on the other hand (also known as apartment complexes) are buildings with more than one rentable space. Even though there are fewer barriers to entry when building a portfolio of small homes, there are several advantages to investing in large residential complexes.
Here are three reasons why you should invest in multifamily real estate.
1. They Are Much Easier To Finance
Before we continue, you should know that acquiring an apartment building will be significantly more expensive than purchasing a single-family home as an investment. A home for rent could cost an investor as little as $30,000 while the cost of a multi-family complex can go well up in the millions.
This might make it seem as though securing a loan for a single-family property would be a lot easier than trying to raise money for an apartment complex, but the truth is that a multi-family property is more likely to be approved by a bank for a loan than the average home.
That’s because multi-family properties consistently generate a strong cash flow every month, even if the property has a handful of vacancies or a couple of tenants who are late with their rent. If a tenant, for example, moves out of a single-family home, that property would become 100% vacant, which means that It will stop producing any income.
Now if you consider that the last example can’t really happen if you’re renting an apartment complex to several tenants, you’ll see that the likelihood of a foreclosure on that multifamily property is not as high as a single-family rental. This makes apartment buildings a less risky investment for a lending institution and can also result in a more competitive interest rate for the property owner.
2. You Can Grow Your Portfolio Quicker
Let’s put it like this: acquiring a 20 unit apartment building is a lot easier and much more time-efficient than purchasing 20 different single-family homes. This makes multifamily real estate very suitable for investors who wish to build a relatively large portfolio of rental units.
Following the example above, you would need to work back and forth with 20 different sellers, and conduct inspections on 20 houses that are each located at a different address. Let that sink in.
In some cases, this route would also require you to open 20 separate loans for each property. All of this headache could be avoided by simply purchasing one property with 20 units.
As the old saying goes, take the path of less resistance.
3. Property Management Makes Financial Sense
More than a few real estate investors hire a property management company to handle the day-to-day operations of their rentals since they don’t really enjoy managing their own assets. These property managers are typically paid a percentage of the monthly income that a property generates to find and screen tenants, collect rent payments, handle evictions, and maintain the property.
For many investors who own one or two single-family homes, contracting an external manager is a luxury they can’t afford, especially if their portfolios are still developing. However, the amount of money that multifamily properties produce each month give their owners room to take advantage of property management services without the need to significantly cut into their margins, and more importantly, their time
Ready To Invest In Multifamily Real Estate?
One of the most popular ways to invest in real estate is to own or invest in a collection of rental properties. It is a great way to generate cash flow and build an enduring legacy for you and your loved ones, and the first step to achieve financial freedom
Investing in multifamily real estate can give you access to easier and better financing opportunities, the ability to quickly grow one’s rental property portfolio, and the luxury of hiring a property manager.
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