Is Multi-Family Real Estate Investing Right For You?

Written by Posted On Monday, 13 November 2017 14:41

One of the reasons that real estate is such a great investment is that there is more than one way to be successful. You can buy rental properties, buy and flip, and invest in REITs, among other strategies. If you plan to invest in residential real estate, you can choose from single-family properties and multifamily properties.
Single-family properties are dwellings with just one unit for rent. Multi-dwelling properties have more than one. They can be duplexes, triplexes, quadplexes, or apartment complexes. Although it is a bit easier to get started investing in single-family homes, there are many advantages to investing in multifamily properties, especially apartment complexes. One Location
Having all your rental units in one location save you a lot of time and effort. It is easier to visit all your properties at once for inspections. If you manage the property, you’ll also find it easier to meet with tenants, collect rent, and show vacancies. 
Economy of Scale
When you have all your units at one location, you can save money on: • Maintenance • Utilities • Major repairs • Insurance • Property management • Landscaping
Since you have your properties all in one location, you should be able to negotiate better rates on a number of real estate related services.
Rather than get financing on your personal credit history, when you buy a multi-family dwelling with more than four units, lenders look at the financial performance of the investment. Even though it is much more costly, it is easier to get a loan for a multi-family property than it is for a single-family. Why?
Multi-family complexes can show their cash flow from month to month. Lenders understand that a property with 20 units still brings in money each month even if a renter is late or a unit is vacant. A single-family home, on the other hand, brings in no income when it is empty. This means that foreclosure is less likely. With less risk comes easier financing, often with lower interest rates.
Increased Cash Flow Opportunities
Oftentimes, multi-family properties have a large potential opportunity for increased cash flow. Past owners may not be charging current market rates. Once you buy the property, you can increase the rates to current levels and have an immediate revenue increase.
Sometimes, multi-family properties are in need of some TLC. With a bit of renovations, the units can rent at a higher monthly rate. Once again, bringing in increased revenue.
Builds a Real Estate Portfolio More Quickly
If you want to have a large portfolio of rentals, multi-family units may be the way to go. It is much simpler to acquire a 10-unit apartment than it is to acquire ten single-family homes. Instead of working with ten sellers, having ten inspections, opening ten loans, you can just purchase one property.
Property Management Makes More Financial Sense
Property management eats up cash flow faster than most other ongoing expenses in terms of rental units. That’s why I suggest that new investors do their own property management. However, many investors do not want the hassle of being a hands-on landlord. Although it doesn’t make much sense to hire a management company for two or three properties, the cash flow of a multi-family unit allows property management services to be on the table.
Is It Right For You?
Like with any investment, the answer is that it depends on your own situation.  • If you are selling single-family properties to buy an apartment complex, deadlines could be a challenge if you plan to use the 1031 Tax Deferred Exchange.  • Do you have enough money to invest? • Do you have enough knowledge to understand the cash flow of the properties you are considering? • Can you find a good management company? • Are you willing to provide financial statements to your lender on a periodic basis?
Both single-family and multi-family home investments can be worthwhile. The point is to do your due diligence, make sure the numbers work, and negotiate the best deal. For more information on investing in residential properties, give me a call or email me. I’d love to help you understand the pros and cons of multi-family investments.

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John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

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