Investing in multifamily real estate is one of the best ways to generate cash flow and build wealth.
So in this article, we want to share 5 important reasons for real estate investors to invest in multifamily real estate as part of their overall investing plan.
1 Easier to Finance
Although multifamily investment properties are more expensive than single-family properties, they’re generally easier to finance, all things considered.
While this may sound counter intuitive, investors need to understand that multifamily properties pose less risk for a lender, because multiple families are living under one roof.
Vacancies relating to multifamily and single-family properties is just one example of how multifamily properties are less risky for lenders. A vacancy with a multifamily property has less of a negative impact than with a single-family property, because it continues to generate cash flow from rents collected from the remaining families.
2 Quickly Grow Your Portfolio
Investors can grow their rental property portfolio more quickly with multifamily investment properties than single-family homes.
For example, the time, energy, and expense of purchasing 300 single-family properties with 300 closings can be drastically reduced by purchasing one multifamily property with 300 units. An aggressive investor can grow his portfolio quickly with a few multifamily purchases, rather than taking years to purchase individual properties.
3 Easier Property Management
Some real estate investors with single-family homes try to self-manage their properties in order to save money, especially when they only own a few properties. Of course, this usually does not bode well for the investor or tenants, and causes major stress for both parties.
Multifamily investment properties can be easier to manage because they produce the cash flow and income to reasonably afford the staff to manage the property.
Additionally, multifamily properties can be less expensive to manage because:
Professional management staff work full time, and possibly live, on the premises.
Units in a multifamily property are centrally located, and not spread out over a large geographic area.
4 More Options for Forced Appreciation
Forced appreciation occurs when an investment property increases in value as a result of actions taken by the owner.
Multifamily properties inherently have more options for owner-driven appreciation, because a small change adds value affecting multiple families, not just a single family. Also, larger multifamily properties have large common areas and community amenities that can be enhanced to add value and force appreciation.
Finally, when breaking down the numbers on a per family basis, the cost per family for the improvements of a multifamily property are often considerably less compared to a single-family home.
Common improvements to multifamily investment properties that force appreciation include:
Improving curb appeal.
Updating common areas and individual units.
Adding and improving amenities.
Adding security features, such as a gate, security guards, etc.
5 More Cash Flow
Multifamily investment properties have a greater opportunity to generate cash flow than single-family properties, because of the reasons we’ve discussed.
Higher profits are generated by lower expenses resulting from having multiple units under one roof, when compared to single-family homes spread great distances apart. Also, multifamily properties have centralized and consistent management teams that can generate profits by lowering expenses.
Cash flow is also generated with multifamily properties by consistently forcing appreciation, which results in higher rents, higher profits, and a stronger balance sheet.