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Benefits Of Multifamily Investment And How To Calculate Them

By May 26, 2018 No Comments

Multifamily investment continues to grow as one of the most highly demanded real estate investment opportunity. The benefits it brings are very easy to calculate using the basic information you can obtain as a tenant.

If you were to compare multifamily investment to a more spread out approach, the former is at a much greater advantage due to the following benefits associated with it:

1. Chances of Appreciation

Cash flow is the main aim of any investment if it is done for the sake of obtaining liquid cash almost instantly. If you make your decision of purchasing single-family houses in multi-housing complexes, and if the neighborhood starts appreciating in terms of the quality of life, you have yourself an ideal situation where you can multiply your benefits.

2. Added Amenities

This is one option which can only grant you increased pay if you operate it in a multifamily housing market. Take an example of a complex which has people wanting to have a common gym. You decided to conduct a survey and mostly got a positive response and decide to construct the gym.

The return this additional investment will grant you is bound to increase the overall benefits you derive from the project.

3. Management Advantage

The most major advantage concentrated investment has over a more scattered approach is that the properties existing nearby a lot easier to manage. You will not have to hire different agents to manage houses in different areas of the city, for example.

Every time you feel that seasonal repairs, renovations etc. are coming up you can get the job done at collective rates because you have more properties existing in the area. Finally, if all of the houses are ideally occupied by people on rent, the collection and data management process will also be very easy to manage.

Calculation of Benefits

You can make a very nice calculation of your overall benefits of a financial period (a year for example) using Net Operating Income Figures. This is the income that you obtain from a single property after a financial period minus most of the operating expenses that you had to pay for from the gross income. These include any renovation or repairs charges or any documentation completion issues. You also account for unearned income in the net operating income figures, which is why it gives you a very realistic view of your property in the market. The only major cost excluded from it is that of tax, but because taxes continue to vary from year to year, the NOI turns out to be the most important factor. It is simply calculated by subtracting costs incurred from the overall gross income you obtain.

An Alternative Approach

Some investors calculate the capitalization rate which is a percentage measure of the total NOI per financial year compared to the market value of the property. A rate of 10% is considered to be extremely healthy because it means that in 10 years you will be able to regain the amount you initially invested.

With such simple steps and profitability ratios involved, it is no doubt that multifamily investment is the most important mode of investment out there.

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