7 Reasons To Invest In Multifamily Property

By on August 3, 2017

How times have changed.

Investing in real estate is no longer an extra-curriculum activity reserved for those with too much money and time on their hands. At least that was the stereotype up until the early 1990s.

These days investors start buying rental properties as young as in their early twenties.

This can be partly attributed to the wealth of knowledge readily available on the internet.

Yet even with the flurry of real estate investors seeking good deals to get involved in and trying their hands in landlording, most still stick to the tried and tested single-family house.

Multifamily real estate just seem to be too much of a financial and resource commitment. Or is it?

Here are some very logical reasons to start seriously considering a move into multifamily properties.

1) Costs economics

Because of the surge in real estate demand due to a rise in population, and more people preferring ownership to renting, prices of single family homes always tend to rise.

In fact, if the news is anything to believe, there always seem to be new record sales all the time.

The irony is that homeowners often don’t realize that for a house priced at $300,000 for example, the same amount of money might enable them to purchase a lower end multi-family building that consist of maybe 5 apartment units.

Or when considering a $300,000 house, in many cases, an additional $100,000 might be able to secure a 5-unit apartment building as well.

Even if a regular home buyer is not able to cough out that additional $100,000, consider that taking up a unit himself and renting out the 4 remaining units will be able to generate an income that can make the mortgage repayments perfectly manageable.

2) Better cash flow against capital

You need to trash that thought that multifamily properties, or even commercial properties, are just not affordable to the average investor.

Just put in a little effort into conducting a search and you will find listings at the price range of typical houses.

As a disciplined real estate investor, you should not be driven by money or profits in dollar value.

What should be more important is return on investment (ROI).

A lot of multifamily properties come with inherited tenants that allow you to immediately work out both an ROI and net operating income (NOI).

If a small building for example, is available for $300,000 but does not look the part, put aside your visual judgment.

Because it might have existing tenants that are contributing to a total of $30,000 in rental cash flow a year.

At this types of numbers, which is not unheard of, you would immediately be doing better than 50% of real estate investors in general.

This is even before putting into perspective that you might be taking on a mortgage loan at 80% loan-to-value (LTV) working out to just an initial capital outlay of $60,000.

3) Easier search

Few people need reminding that the overwhelming of available real estate to acquire are single-family residential houses.

In fact, an ideal rental property or fixer-upper might be available and listed for the public to view. Yet because of the huge volume of this category of real estate vying for advertising space, you might never come across it.

That is the state of the mess the information age has caused.

The number of multifamily real estate available on the open market will be fewer and easier to sieve out from the noise outside.

On top of that, you might have a personal goal of acquiring and managing a portfolio of 10 rental properties.

With big and small apartment buildings, you won’t have to buy 10 separate houses and go through the buying process 10 times.

You could achieve that personal goal within one or two transactions. And with inherited tenants to boot.

4) Management

While it would be understandably cost more to maintain and manage a building compared to a house, on a per unit basis, it would usually cost much less compared to a single house.

Moreover, if management and landlording is not your cup of tea, hiring a management company to take on the tedious and mundane tasks will provide good value considering the number of units on your hands.

And even if that bothers you, there is always the option of operating a building under a master lease, passing responsibility to a master lessee.

5) Taxes

One of the worst kept secrets of real estate investing is that the government is more tax-friendly towards investors.

As you move up the chain towards larger properties, you might be eligible for special tax breaks only applicable to investment properties of particular size.

You definitely should check with a qualified accountant familiar with local regulations to see what type of tax laws that can be advantageous.

6) Owner financing options

When single-family homes are being sold, sellers often don’t entertain any form of owner financing structures.

But in multifamily transactions, sellers are often more receptive to owner financing.

This is because it is not easy to find serious buyers of these properties. And once a seller finds one who is willing to commit, they could accept owner financing deals in order not to jeopardize the deal due to complications from a lender.

When a seller is receptive to owner financing, don’t forget that you are no longer negotiating a loan from a bank. This means that the seller could be much more flexible in terms and conditions.

Owner financing is actually widely accepted with the purchase of commercial and multi-family real estate.

So don’t be afraid to request for it in fear of looking like a rookie.

7) Improvements

With more apartment units to work with, you also have more options in how you intend to transform them.

With a single family home, your choices are pretty much limited.

However, with a few units in a building, you can consider creative things like remodeling the penthouse in a posh looking unit to cater with tenants with higher earning power. Or keeping a few for low end tenants.

If you are smart with how you transform the place, you can potentially increase the value of the building exponentially.

What you can do with a building is also less restrictive in terms of zoning laws.

With these attractive reasons for investing in multifamily properties, do give it serious consideration in your next acquisition. It could very well elevate onto another level of profits.



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