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4 Pros Of Multifamily Properties That Hardcore Investors Wish You Don’t Realise
When you are getting sustained success from managing your real estate investments, you are going to hit a point where you will ask yourself “What’s next?”. If the learning curve of an investor can be drawn up into a theory, the next phase of leveling up will be to jump headfirst into multifamily homes. Many investors never enter that phase. They could be more than satisfied with their success on single family homes or simply do not have the confidence to get involved with a multifamily home.
When millionaires say that the first million is the toughest to make, they are indeed giving very profound advice. Because once you hit that first million, you will have the resources and networks to enter bigger investments with more attractive returns. The profits in real dollars also multiplies. This in some way, is similar to multifamily homes. Because by the time you hit that tipping point, you will already have the skills, knowledge and resources you gathered from your experience with single family homes. It will then be up to you to decide whether to get in, or stay out. It is not recommended that you make your first property investment a multifamily one. It’s not that you are doomed for failure. Just that the chances of you mismanaging it is higher than if you already have a lot of experience managing properties.
Other than an ego boost where you get to tell your friends that you own a whole building, there are some very logical and practical reasons why snapping up multifamily properties are much more advantageous than single family homes.
Time. Everybody has 24 hours in a day. And there is only so many hours you can segment up for work, family and sleep. Remember that the underlying purpose for reaching financial freedom via property investments is that you can create a better life for you and your family. You have to question your life’s purpose if your objective is to spend all your time chasing real estate dollars while neglecting yourself and your family.
If you have had experience buying properties, you will already know what a time consuming the whole process can be. You are going to view many homes before deciding on one. Then evaluate many types of financing to decide on a suitable one. After that, there are the legal work and miscellaneous stuff. Imagine doing that 20 times for 20 homes. Now imagine doing it once and owning 20 homes. Which option do you think will save you a lot of time?
Let’s say your long term objective is to purchase 2 single-family properties each year for the next 10 years. By going for a multifamily property with 20 units, you can effectively shorten down a decade of work in 1 transaction. This is even more important when you are not a fulltime active investor. Your job will restrict the time you can spend on sourcing 20 different investments. Instead of going for broke by buying a 20-unit building, even if you buy up multifamily homes at 5 units per transaction, you are going to save a lot of time by doing so. Not convinced yet? Lets now talk about closing costs.
Closing costs. You are going to incur closing costs for every real estate transaction. These will include legal fees, valuation costs, agent fees, etc. If we go back to the example of building up a portfolio of 20 homes, you are going to pay closing costs 20 times. Granted some costs depends on the value of the property or the size of the loan. But bear in mind that when you go for big transactions, service providers will be more accommodating to discounts to grab your business. Smaller homes will take up almost as much effort and time. But you will not have as much bargaining power than if you are going for a much larger deal.
Easy access to units. This is related to the first advantage regarding time. If your properties are concentrated in a location, you are going to save a mother load of time on traveling, maintenance, repairs, etc. If you are in a festive mood, you can even organize events for all tenants in the building to build a harmonious environment.
Now imagine having to travel to and fro 20 apartments in 20 different locations. You might even have to get different service providers for maintenance and repair works. Now instead of hiring 1 management company to run the place, you will have to manage quite a few of them. Tracking whether they are doing their jobs will be a huge challenge by itself. Essential equipment and supplies will also have to made available for each property.
Accounting. If you have taken up accounting lessons as a student, you will know that it is one of the modules that can leave you tearing up your hair. Now imagine having to go through 20 of these accounts for your 20 units. You will potentially go bald before you reach the eleventh set of accounts. Although you are going to hire accountants for the job, like any serious investors, you are going to decipher the numbers to make sure you are on top of things. Having 1 consolidated statement for a multi-unit building sounds much easier. Don’t be naive and think that all you will see in your statements are rental collections and mortgage payments. There is a host of expenses like repairs and supplies that has to be tabulated.
Having a multifamily property in your portfolio is not a necessity for success in real estating. But having one will surely take you to financial freedom at a faster pace provided it is a good asset in the first place. You will have to assess the investment like any other. Do not blindly jump in at the first opportunity. The best approach is a progressive one where you learn the trade with single-family homes and upgrading to multifamily when you have confidence in your skills, knowledge and resources. Vultures will always be circling your investments waiting to pounce on the first sign that you are in trouble.