Popularity
While traditional real estate investments – i.e., single family properties – are usually the first choice when it comes to investing, the popularity of investing in multifamily homes has grown. According to the Business Insider, multifamily homes will become very relevant in the years to come because of a multitude of reasons: 75 million baby boomers headed into retirement; today’s apartment complexes getting converted into retirement homes in the futures; the lack of millennials buying homes; and the increased cost of building new apartment units. Multifamily homes are offering real estate investors more incentives, and, therefore, are becoming more popular among those looking for lucrative investment options. Real estate investors are tired of investing in the same traditional investments, and are willing to venture out and invest in commercial properties, industrial properties, and multifamily properties.
Lucrative Investment
Appreciation is the goal of any real estate investment. Investing in multifamily homes will provide real estate investors with higher appreciation than the traditional investment property. Many times, investors are put off by multifamily homes, with the idea that these properties are just too expensive, and the idea that getting a loan to finance their purchase is almost impossible. However, this isn’t always the case. With single family homes, a down payment of at least 20% is always encouraged or even nearly required. This can be a hefty amount.
According to Peter Boyle, Senior Loan Originator at Summit Mortgage Corp, “For owner-occupants, the best financing is an FHA loan for a multi-unit building you only have to make a 3.5% down payment.” However, this is for owner occupants. Meanwhile, real estate investors who do not reside in the property must also make down payments of at least 25-30%. Although multifamily homes are more expensive, they might sometimes easier to finance because you can always decide to live in one of the housing units and take advantage of the status of owner-occupant. Contrary to popular opinion, lenders are not less inclined give investors loans for multifamily homes because they are more risky. Actually, multifamily homes for rent are less risky in terms of paying the mortgage payments because even if one rental unit is vacant at a time or one tenant does not pay the rent on time, the rental income from the rest of the housing units will allow the investor to meet his/her obligations to the bank. As with any investment property, lenders look at credit scores and cash reserves before deciding to give out loans for multifamily homes. If the lender sees that the investor is more experienced and has invested in multiple properties before, he/she will be more willing to work with this investor.
Although investing in multifamily homes can be very expensive, the return on investment is highly profitable. Multifamily homes appreciate much more quickly than singly family real estate investments. For example, let’s say you find a 49-unit property that is priced at $35,000 per unit, with a cap rate of 8%. You can earn a free cash flow of $140,000 dollars after expenses. Of course, you must take into consideration your debt payments before deciding how much your annual cash flow would be.
Renting out a multifamily home in order to create rental income allows investors to collect rent from multiple tenants, instead of just one tenant. This cash flow would be impossible with single family housing.
In addition to being more lucrative, investing in multi family homes also keeps you safer than single family homes when it comes to foreclosures. For example, a single family home may become a foreclosure quickly, forcing the tenant to vacate. However, when investing in multifamily homes, there may be one tenant that is forced to vacate due to late rent payments, causing only a small fraction of the multifamily home to be left unoccupied.
Appropriate for Experienced Investors
Investing in multifamily homes is more appropriate for experienced real estate investors. It isn’t as simple as investing in a single family property, especially if this is your first time investing. To begin with, multifamily homes require a higher down payment. In addition, there are more risks associated with investing in multifamily homes. For an inexperienced and first time investor, dealing with one tenant may be difficult enough. Imagine becoming a landlord, and overseeing more than one tenant at a time in a multifamily home. If you are not knowledgeable about the basics of real estate investing, this may be very overwhelming.
However, if you consider yourself an experienced real estate investor and have invested in multiple properties before, then investing in multifamily homes is an excellent step to take next. As an investor, this allows you expand your real estate investment portfolio, allowing you to become a well-rounded investor who is able to invest in multiple types of real estate investments.
The popularity of investing in multifamily homes has grown tremendously. The need for multifamily investments has gone up, due to population growth, as well as the spike in new apartment buildings, duplexes, and condos. Multifamily homes are a very lucrative investment, and for an experienced real estate investor, it can provide a very positive cash flow, as well as help you build a substantial real estate investment portfolio. To get started, check out thousands of available multifamily real estate properties on Mashvisor. Here you can find everything you need to successfully start investing in multifamily homes, including the occupancy rate, seasonality trends, revenue potential, cost assumptions, cash flow calculations, and financial and purchase investment property analysis. This excellent real estate investing tool for both experienced and first time real estate investors will help you in your real estate investing journey.