Multi-family real estate investing is a great addition to your investment portfolio. After all, it helps you increase your return without worrying too much about the vacancy rates. Moreover, if you prefer to actively participate in your capital growth instead of handing it over to someone else, multi-family is a great choice. What’s more, it can even earn you rental income! However, before you step into the game, you should know how it works. Here is your guide for investors seeking to invest in multifamily investing in 2024.
The Reality of Multifamily Real Estate Investments | |
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A Comprehensive Guide to Multifamily Real Estate Investing 2024!
As aforementioned, multifamily investing can be really profitable – in so many ways. Are you new to multi-family investment? Consulting a real estate professional like Evelyn can be one way of achieving successful outcomes. The other helpful way is this guide. Keep reading to find out all you need to know about multifamily real estate investing:
What is Multifamily Real Estate?
You should know that multifamily real estate refers to properties with more than one residential unit. In other words, any housing property featuring multiple units is a multifamily property. You should know that multi family homes can consist of two or three units. However, this is not all! You can expect a multifamily property to consist of as many as 10 units and up to 400. A great example of such a multifamily property is an apartment complex.
“The value of multifamily properties appreciate consistently as the time passes. Moreover, it’s a great investment for those seeking to earn additional rental income” – Investopedia
What are the Types of Multifamily Properties?
You should know that there are several types of multifamily real estate investing. All these differ based on the number of units they feature. Anyway, here are some common types of multifamily you should know about:
- Condominiums
- Duplexes
- Triplexes
- Apartment complexes
- Townhomes
- Low-income housing
Undoubtedly, multifamily property investments can be an amazing wealth-building tool. In fact, it is one of the core types of Commercial Real Estate. Furthermore, you can even live there – with your family and extended family. Or rent out the extra units for some rental income.
Did You Know?
Owner-occupied properties are the ones in which one or more units are occupied by the owner and their family.
How to Find the Best Multifamily Properties for Investments?
This is the main question here! I mean you already know how beneficial multifamily real estate can be. So, all you need to know now is how to find the best investment opportunities. For this, you have to keep your research strong (pro tip). For this, you can use:
- Searching MLS
- Off-market Deals
- Professional Guidance
Anyway, here is a detailed breakdown of these strategies to find properties for multifamily investing:
1. Searching MLS
Searching the Multiple Listing Service (MLS) is a valuable strategy for identifying multifamily investment opportunities. After all, it features an exclusive listing of the most promising property options out there. Make sure you thoroughly assess the relevant property information, its condition, nearby amenities, and historical data before putting your money in anything. This is so because these factors can majorly impact the potential value of your investment. Here’s a tip for you: keep checking the listing regularly.
2. Off-Market Opportunities
Unlike MLS, searching the off-market comes with less competition and more lucrative deals. You can say that these multifamily options are like hidden gems. Furthermore, you should have good connections and market know-how if you want to find multifamily properties here. Moreover, you can even explore public records or approach homeowners directly for leads. You may wonder, why choose the off-market? Well, this mode of property search gives you more room for negotiation and working things your way.
3. Consulting a Professional
This can be a really beneficial move for you. After all, it will ease out the whole process while providing you with the best option per your investment goals. Besides, a real estate professional like Evelyn Baez has the diverse market knowledge and expertise you need to navigate the commercial real estate landscape. With her insightful guidance, you can easily choose what’s best for you. Moreover, professionals also help you access exclusive multi-family listings as well as the most amazing off-market deals. What’s more, you can count on them to negotiate favorable terms for you. So, if you want to streamline complex real estate transactions, having a professional by your side is important.
What Factors Impact Multifamily Investments?
Investing in multifamily requires thorough research. You can’t just wake up one day and decide to put your money in the first property you see. Before starting off, you should assess the market value of potential properties, the recent trends, and the financial sensibility of the purchase in question. Besides, here are some other factors that will impact your multifamily real estate investing:
● Location
You should know that the location impacts the desirability of the property. Areas with better public amenities tend to attract more tenants. As a result, your investment has higher occupancy rates and rental income. Also, being close to public transportation and major highways is a plus. Therefore, always research the neighborhood trends and demographics before choosing a multifamily property to invest in.
● Number of Units
This is another important factor to consider. And along with the number of units in a property, you should know the number of rooms in each unit too. Here’s a tip for beginner investors: invest in either duplex, triplex, or fourplex, instead of going for more units. This will minimize the risk for you and maximize your income and growth potential.
● Estimated Income
If you want to assess the viability of your property, estimating the potential income is a wise step. This will help you determine how much ROI you can expect if you purchase a specific multifamily real estate investment. For beginner investors, using the 50% rule is recommended. According to it, you should allocate 50% of your potential income to expenses instead of a mortgage.
● Expenses
When it comes to multifamily real estate investing, you should know what you are getting yourself into. For this, calculating expenses, along with the income is also necessary. Therefore, when you consider a property to invest in, estimate the property management fees, maintenance costs, insurance, taxes, etc. Keeping these factors in consideration will surely help you make the right decision.
What are the Advantages of Multifamily Real Estate Investing?
If you have come reading this far, multifamily investments can be a great way to amp up your return potential. Here are some more benefits these offer:
✔ Consistent Income
The most amazing thing about multifamily investing is that it provides a consistent and reliable cash flow. After all, it has multiple units that you can rent separately and earn rental income. Besides, even if a unit is vacant, the income from the occupied ones can back the expenses. As a result, you have a more stable income stream.
✔ Scalability
You know that multifamily offers scalability. How so? Well, with such investments, you can purchase many units (properties) by just buying a single unit. This means you no longer need to buy one after the other single-family unit to diversify your portfolio. Just invest in a multifamily property and you are all sorted. The best example in this case is an apartment complex.
✔ Tax Benefits
Looking to save big on property taxes while investing? If so, multifamily can be a great choice. After all, it lets you avail of tax benefits in so many ways. These include saving on mortgage interest, property taxes, and depreciation from their taxable income. This will surely reduce the overall tax burden and will allow for maximized returns.
✔ Risk Management
The best thing about multifamily real estate investing is the low risk of income loss. This is so because the income relies on multiple tenants – unlike a single-family property. So, if a tenant vacates, it won’t have much impact on the income because the remaining units will cover for it. Also, there will be a diversification of tenant profiles. This means that economic ups and downs will not influence the stability of your income much.
What are the Disadvantages of Multifamily Real Estate Investing?
Apart from the pros, multifamily real estate investing also brings some cons with it. Here are the potential downsides of this type of investment:
✔ High Risk of Turnover
It’s true that multifamily properties accommodate a higher number of tenants. But with this, comes a higher risk of vacancy and turnover. Resultingly, you may have to face lost rental income, marketing expenses, and the need for frequent renovations to attract new tenants.
✔ Management Challenges
As you already know such properties feature multiple units. These come with multiple tenants and leases too. Moreover, this can become a challenge to manage in the long run. So, you may need to hire a property management company or dedicate specific time to look after your property and its matters.
✔ Liability & Risk
As the owner of a multifamily, you may be liable for the damages occurring at the property. These include all sorts of accidents or injuries. In other words, you (the owner) can be responsible for the damages that tenants cause. As a result, you may even have to compensate for the repairs, treatment, or disputes.
✔ Illiquidity
Your multifamily real estate investing is usually a long-term investment. Yes, that’s true! In fact, these come with a holding period of around 3 to 10 years. This is what makes them illiquid. In other words, you cannot withdraw from your investment with a sudden change of plans. Anyways, this becomes a challenge for investors who need quick access to their invested funds.
Conclusion
So, is multifamily real estate a good idea in 2024? Well, considering the perks it provides, it’s definitely a wise decision. Instead of purchasing several single-family units and managing them separately, you can invest in one multifamily. After all, it offers multiple units in one building. Do you know what this means? More opportunities for income. Besides, it’s a great way to save on taxes and diversify your portfolio. Need help with your investment decisions? Feel free to contact Evelyn! She’s ready to guide you through the way and make the best, most profitable choices.
