To become a successful real estate investor, you should always pick the best deals. The world of real estate investing is vast with numerous investment property types and investment strategies. A real estate investor can choose between rental properties, buy-and-hold, fix-and-flips, house wholesaling, commercial real estate investing, etc. Each type and strategy has its benefits; however, real estate experts agree that a key to successful real estate investing is investing in multi family rentals.
Multi family rentals are residential real estate properties which consist of multiple residential units and house multiple tenants. They range from duplexes to entire apartment buildings. This type of rental property is very attractive to real estate investors who are looking to go big into real estate investing. Let’s skip any further introductions and explain why multi family rentals are a must for a successful career as a real estate investor, what to consider before investing in them, and how to find the best one.
Why Multi Family Rentals Are a Must
Multi Family Rentals Generate High ROI
It should go without saying that many decide to become real estate investors due to the many financial rewards that real estate investing offers. Real estate investors make money and earn profit either through positive cash flow or appreciation. When investing in multi family rentals, property investors’ source of income is positive cash flow.
Since multi family rentals consist of multiple residential units and house multiple tenants, property investors have a higher chance to generate positive cash flow in the form of monthly rent. Eventually, positive cash flow will lead to a higher return on investment, which is what every real estate investor aims for when investing in real estate properties.
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Multi Family Rentals Have Fewer Risks
Just like any other type of investment, entering the world of real estate investing comes with a number of risks. Of course, each type of real estate investment property has its own risks. However, successful real estate investors find that investing in multi family rentals is less risky than investing in other types of investment properties.
For example, one of the risks associated with real estate investing is high vacancy rates. While multi family rentals do face this risk, it’s highly unlikely that the vacancy rates will reach 100%. To further explain, assume you own a multi family rental property with 16 residential units, and 3 of these residential units are vacant. Of course, you wouldn’t want this to happen, but it does not mean you’re failing as a real estate investor.
Another risk that property investors could face is negative cash flow, which basically means your rental property is costing instead of making you money. Smart property investors with multi family rentals don’t face this risk because even if they have a vacancy, they can still collect monthly rent and generate positive cash flow from residential units that are occupied!
Related: 10 Major Risks of Real Estate Investing and How to Reduce Them
Multi Family Rentals Mean a Large Investment Portfolio
Since multi family rentals consist of multiple residential units, once a real estate investor purchases one, he/she immediately becomes an owner of a large real estate investment portfolio! It might not be a diverse investment portfolio, but it will definitely be a large one with fewer risks than owning and managing multiple real estate investment properties in different locations. Multi family rentals give property investors the ability to go big in real estate investing without unnecessary complications!
Managing Multi Family Rentals Could Be Professional
True, managing multi family rentals requires more time and effort than managing a single family rental. However, real estate investors can always opt for working with a professional property management company to take care of their rental property. This works out great for real estate investors who would prefer to play a passive rather than an active role as a landlord and having to deal with tenants.
These real estate professionals will come with a cost, of course, but they give property investors a virtually carefree real estate investing experience. Thus, if you can afford professional property management, then multi family rentals are the best investment strategy for you.
Multi Family Rentals Allow Forced Appreciation
As previously mentioned, profit in real estate investing comes from positive cash flow and appreciation, and the main source of income for multi family rentals is positive cash flow. However, this does not mean that these types of real estate investment properties don’t appreciate! Appreciation is the increase in real estate investment properties value over time. Although multi family rentals appreciate at a lower rate than single family rentals, property investors can actually force appreciation on multi family rentals!
Multi family real estate investors can force appreciation by adding amenities such as a laundry room or a parking space, providing extra services, or renovating the curb appeal of their investment property.
Related: The Best Tips for Forced Appreciation in Real Estate Investing
What to Look for When Investing in Multi Family Rentals
Are you convinced that multi family rentals are a must for successful real estate investing? If yes, take these two important real estate investing factors into consideration before you go ahead and buy a multi family rental property:
Multi Family Rentals: Location
If you’ve done your research on real estate investing, then you probably already know that location is the most important factor to a successful real estate investing career. So, it’s a no-brainer that location is the first thing to keep in mind before investing in multi family rentals. Before buying a real estate investment property, make sure it’s in a location where demand is high for real estate investing – this allows you to charge a higher monthly rent. In addition, look for locations that are experiencing a growing population, as property investors have no trouble finding tenants for their real estate investment properties in these areas.
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Multi Family Rentals: Rental Strategy
In real estate investing, property investors can invest for the long-term (traditional) or for the short-term (Airbnb). One of the great things about investing in multi family rentals is that real estate investors are not limited to only one rental strategy; they can choose either! For example, one real estate investor can buy a multi family rental property and rent it out for a long-term tenant (which is the most common approach), while another real estate investor might buy a multi family rental property for the purpose of renting its residential units as Airbnb rentals. Both rental strategies can be very beneficial for property investors, thus, determine which strategy works best for you before purchasing multi family rentals.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
How to Find the Best Multi Family Rentals
When searching for the best multi family rentals, successful real estate investors conduct a real estate market analysis to determine whether or not a real estate investment property is worth their time and money before actually making the purchase.
Alternatively, to makes thing easier while searching for multi family rentals, make use of Mashvisor’s investment property calculator! This real estate investing tool allows property investors to search for and analyze any type of real estate investment properties across the US housing market. Moreover, Mashvisor’s investment property calculator also provides you with property and neighborhood analysis regarding cap rate, cash on cash return, and positive cash flow, allowing you to find the most profitable investment properties. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
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