Do you want to invest in residential real estate with a high return on investment? Then consider multi family real estate investing! Multi family real estate properties are investment properties that generate high occupancy rates, high rental income, and a high return on investment, especially considering the cap rate. What else is there to multi family properties? What is cap rate? How can you find multi family real estate for sale with high cap rates? The answers to these three important questions will be the focus of this blog.
Related: Understanding Multi Family Investment Property Returns and Benefits
What Is Multi Family Real Estate?
First thing’s first, what is multi family real estate? As the name suggests, multi family rental properties are multi-unit properties. The variety of multi family real estate for sale is vast, with anything ranging from a duplex, or two-unit property, to an apartment complex with dozens or even hundreds of units. There are three main benefits of purchasing multi family homes for sale.
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More Units Per Price
It’s no secret that buying residential investment properties is not cheap. This is especially true with single family real estate, which is the counterpart of multi family real estate. With multi family real estate investing, however, real estate investors get more bang for their buck. Instead of buying a one-unit property, investors who invest in multi family real estate for sale will own many units within the same property, thus owning more units for a price of one property.
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High Rental Income and ROI
A property with multiple units can be rented out to multiple tenants. This leads to consistent and high rental income and occupancy rates, which ultimately result in a high return on investment. A return on investment analysis of multi family properties and single family properties shows that the former typically has a higher ROI than the latter.
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Easier Professional Property Management
Property management is a must for the success and maintenance of all types of investment properties. Typically, investors may choose to manage the property themselves or have a professional property management company manage the property. After buying multi family homes for sale, investors should take advantage of professional property management. Not only will it save the investor the hassle of managing multiple units, but it will also help the investor save money, as the costs and time associated with self-managing skyrocket with multi family investment properties.
What Is Cap Rate?
Secondly, what is the cap rate? Cap rate, short for capitalization rate, is a return on investment metric based on rental income, expenses, and the value of an investment property. To better understand the concept, let’s take a look at the cap rate formula.
Related: Best Places to Invest in Real Estate Based on Cap Rate
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Cap Rate Formula
The cap rate calculation is as follows:
Cap Rate = (Net Operating Income / Current Market Value) x 100%
Calculating cap rate is essentially using a ratio of a property’s net operating income (NOI) and its current or fair market value (FMV). NOI is the difference between the annual rental income of a property and its operating expenses. Expenses that are paid to keep the property running, such as taxes and maintenance costs, are operating expenses. Mortgage payments do not fall into this category. The current or fair market value of multi family real estate for sale is defined as the property’s value (or price, if before purchase) at a particular point in time.
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Cap Rate Example
Calculating cap rate from an example will further shed light on the concept. Say a multi family investment property has 15 occupied units. Each unit generates $1,500 monthly, and the total operating expenses of the property is $1,500. If the property’s fair market value is $200,000, what is its cap rate?
NOI = (15 units x $1,500) – $1,500 = $21,000
FMV = $200,000
Cap Rate = $21,000 / $200,000 = 10.5%
The answer begs the question: What is a good cap rate? Is the 10.5% answer considered good? The answer to “What is a good cap rate” will differ from place to place, as it depends on a multitude of factors such as location, property type, rental strategy, and others. Generally speaking, though, a good cap rate is anything that is between 8 to 12 percent, although this range can be broadened to include 6 percent.
What Is a Property Finder?
Finally, we can ask: How do you find multi family real estate properties with a high cap rate? The answer is quite simple. All you need to do is use a property finder.
A property finder allows investors to find high cap rate properties for sale. In its most basic form, a property finder searches for properties in a certain area. Investment property search will differ from one property finder to another.
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Where to Find a Property Finder
So, how and where do you find a property finder? Many real estate software websites, such as Mashvisor, provide their users with property finders. With Mashvisor, you can use a property finder to search for any multi family real estate or single family real estate property in the US.
Related: Mashvisor: The Best Rental Property Calculator You Can Ask For
Simply select a city/cities where you want to invest and adjust the filters to include only multi family real estate for sale, investment properties within your budget, and even the number of bedrooms/bathrooms you want. The tool will then show you a list of all the high cap rate properties in that location. It’s that simple!
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
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Other Property Analysis Tools You Need
Mashvisor’s investment property search isn’t the only thing an investor will need for success with searching for high cap rate multi family real estate. The selected location will need to be analyzed, so a neighborhood analysis, which breaks down neighborhoods according to different metrics, is also required. An investment property analysis, and specifically a return on investment analysis, are also in check since the property’s cap rate capabilities will need to be examined. This list of tools may seem overwhelming, but it really isn’t with Mashvisor. Why? All of these tools are part of Mashvisor’s real estate investment calculator! Want to begin your search for multi family real estate for sale with high cap rate? Click here to start your 14-day free trial with Mashvisor!