There is a wide range of profitable options for investors considering venturing into real estate. One such option is investing in multifamily properties. Multifamily residential property is a complex building housing multiple separate units for residential inhabitants. It is a type of rental property investment for people looking for additional monthly income sources and a gradual rise in their property value.
There are several reasons to invest in multifamily properties. Among them is the ease of obtaining financing and the less risk involved. Most lenders see multifamily properties as a less risky investment than most real estate types.
To lend money, lenders usually consider the potential of the property to make returns. The higher the number of units and occupants, the lower the negative impact of a single or double unit vacancy on monthly income.
For example, one tenant vacates their property in a multifamily resident housing 10 units, leaving the owner with nine occupied units out of 10. This equates to exactly 10 percent of the total occupancy, meaning that the chances of running at a loss are much lower than in other real estate types like single-family homes, where losing the tenant could lead to a total loss of the expected monthly income.
Alongside the ease of obtaining finance and the less risk involved, investing in multifamily properties provides a steady income as an owner collects rents monthly, leading to sufficient cash flow. To ensure a steady flow of revenue, owners can also turn units over quickly by leasing them to prospective tenants, usually over one year.
Multifamily properties also have a higher potential to appreciate, primarily due to the high demand for affordable housing. This increased demand results from different factors. According to Forbes, baby boomers are increasingly renting properties instead of buying them. The business magazine also noted that people aged 55 years and older make up the most in the significant shift from homeownership to renting.
Another reason for this demand is the high percentage of millennials who have opted to rent as many homes are unaffordable or because they've invested in some other venture.
In addition to the high demand for housing units, regular upgrades like laundry rooms and equipment, security cameras, and parking spaces provide the opportunity to positively impact a tenant's life while also raising rental rates, attracting potential renters, and ultimately raising the property value.
To ensure that properties are in good condition, owners usually enter into a legal agreement with renters. The contract usually requires renters to pay a security deposit for future property damages. This way, owners can ensure that their properties do not drop in value due to a lack of repairs.
Also, multifamily properties are much easier and cheaper to manage. Units in a multifamily property usually share the same services and features, meaning each unit will have a smaller cost. This, in turn, translates to reduced expenses and a surplus net monthly income. Additionally, the cost of repairs and maintenance for multifamily homes is equally less than that of several separate properties.
Lastly, investing in multifamily properties is not only a source of income but can also serve as a place to live as an investor could occupy one of the units. At the same time, other tenants pay for the mortgage through their monthly rent.
