Multi-family real estate refers to residential buildings that contain more than one unit. These properties usually house more than one family and could be a duplex, condo, or apartment building. Multi-family properties are sometimes mistaken for commercial real estate, but they fall under residential even though money is paid for leasing or outright buying.
The most common types of multi-family properties are apartment buildings and multiple-unit complexes. Investing in them has several benefits as well as disadvantages. First, multi-family real estate investments give investors many tax advantages. Investors have the advantage of estate depreciation and cost-segregation tax benefits while the property's fair market value rises.
Secondly, apartment buildings have a more predictable income expectancy than single-family rental cash flow because it allows for multiple leasing. Financing for multi-family properties is also easier to come by due to bank policy on giving out loans based on proof that payback will not be difficult through realistic income and profit. Real estate investors can also take out a single loan to purchase multiple units, whereas single-family homes require multiple loans. Finally, with the help of a property management company, investors do not have to be directly involved in maintenance and communication with tenants.
On the downside, multi-family properties cost investors more money when they buy them upfront. There are also many competitors in the multi-family real estate market because of its many benefits.
From a financial perspective, investors new to the multi-family property market need to consider several factors before investing. The first is location. Any good multi-family property should be located near schools, hospitals, and grocery stores and be a family-friendly community. Investors usually have an inflated budget to cover extra costs such as repairs and extra supplies. Other things to consider are financial goals, the cost of renovation, and the property's estimated cash flow.
Finally, maintaining multi-family properties requires collaboration between the investor and property managers. The property managers can effectively take care of day-to-day duties such as collecting rent from tenants, handing over apartments, and responding to maintenance concerns. On the other hand, investors only worry and take care of the property's profit and expenses (including paying the property managers). However, in cases where the investor manages the buildings, there is property management software that can help reduce turnover, boost occupancy, and increase the profit margin. Some software even has features that offer properties for rent, screen renters, establish custom leases, and receive payments online.
Although multi-family real estate investing can be time-consuming and highly demanding, it is a valuable asset for investors and private-use owners alike, especially when they can pay the initial outlay.
