If you have plans to invest in a multifamily property, it is important that you choose the right size or type that will best suit the goals you have in mind. There are basically two main categories here, namely properties composed of 2 to 4 units and those with 5 or more units.
To make your decision making easier, there are several perks associated to both categories that you have to know.
Benefits of Multifamily Investment Property with 2 to 4 Units
Reduced overhead – Unlike what most people believe, this category has limited overhead costs. This reduced overhead costs is because of the possibility of combining several streams of income to account for the similar amount of costs which are ubiquitous for single family properties.
Available financing – A lot of investors choose these properties since these have already been meant as residential assets. Since these are residential, these can then be financed as such.
Mitigate risks of vacancy – Aside from providing several streams of income, these multifamily properties can also mitigate risks at the same time, something that single family properties cannot. While single family houses have 100 percent of the investment tied up in a single unit, the multifamily houses refrain from putting all eggs in just one basket. It means that a multifamily home owner can possibly lose one tenant yet still receive rents from the remaining units. On the other hand, a single family owner will lose the ability of making money once they lose the one tenant they got.
Benefits of Multifamily Investment Property with 5 or More Units
Control on the value of the property – Multifamily properties composed of over 4 units will be considered as commercial. Though this might alter the kind of financing you can use, this comes with a subsequent benefit in which the value will depend on the income it can produce. Also, the income generated by this kind of property depends on what its owner considers appropriate.
Cost effect management – The bigger a multifamily property’s scale is, managing it will also be more cost effective. Large multifamily properties can now be found everywhere with a much reduced cost to manage for each unit compared to their single family counterparts.
Economies of scale – Similar to their smaller multifamily counterparts, buildings with over 4 units can take advantage of the concept of scalable economies. It means that a building composed of several units can make the most out of economics of scale. You can then lessen the cost for every unit when the number increases.
What’s Your Best Choice?
Without a doubt, the size of your multifamily investment property affects how much you can expect in return from it. The properties with 2 to 4 units share the same benefits as their bigger counterparts although there are certain differences you have to account for. At the end of the day, it all depends on you and your goals.
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