The 10 Benefits of Investing in Multifamily Properties
Despite looking intimidating to the average investor, multifamily properties are one of the best ways to make money long-term. It may take some time to learn the basics of multifamily property investing, and even longer to secure the funds necessary to make such a big purchase, but once you clear these hurdles, you’ll be in a great position to succeed.
The Benefits of Property Investing
Let’s start by covering some of the basic benefits of property investing, which you’ll see with any multifamily property:
- Multiple ways to make money. For starters, there are multiple different ways to make money when you buy a property. You can focus on renting the property, securing cash flow and covering your expenses, or optimize for long-term appreciation. You might even consider “flipping” the property for a short-term profit. You’ll have a lot of choices, and a lot of income potential.
- Long-term appreciation. Properties tend to appreciate in value over time, especially in good neighborhoods. If you hold your multifamily property for a few years, then sell to another investor, you can almost instantly get a return on your investment.
- Cash flow potential. As you hold the property, you’ll be able to make up for your mortgage and other expenses thanks to the cash flow generated by your tenants. For example, you may have a $2,500 mortgage payment, and 3 tenants who each pay you $1,200 per month; this means you’ll have a monthly income of $3,600, or an $1,100 surplus.
- Resistance to market fluctuations. Real estate tends to be resistant to fluctuations in the stock market—and sometimes the economy at large. If you’re tired of seeing the volatility of the stock market and you want something more stable, you may consider property investing.
- Strategic flexibility. Investing in property also gives you a lot of strategic flexibility. Depending on the capital you have, your short-term and long-term goals, and the conditions of the market, you could choose to flesh out your portfolio with commercial properties or residential properties, single-family properties or multifamily properties, or you could choose to focus on long-term appreciation, short-term gains, or collecting monthly rent.
- Snowball potential. After making a monthly profit on a rental property, you may be interested in collecting funds to buy another property. Then, you’ll have twice the profit, and you’ll be able to buy your next property twice as fast. Soon, you’ll have a full portfolio—and a ton of money coming in. Investing in real estate makes it easy to snowball.
The Benefits of Multifamily Over Single-Family
Even within the realm of property investing, multifamily properties have many advantages over their single-family counterparts:
- Greater consistency (due to lower vacancy rates). Vacancies can kill the profitability of a single-family property. Every month your property is unoccupied is a month you’re making no money, but responsible for ongoing expenses. But with a multifamily property, vacancies aren’t as big of a deal. If you have 10 units and 1 of them is empty, you’ll still be generating 90 percent of your usual income. It makes it much easier to deal with occasional tenant turnover, and gives you more consistent cash flow that you can count on for budgeting.
- Higher revenue. You can also use a multifamily property to generate higher revenue, due to the larger number of units available. You’ll often end up paying more for a multifamily property, but you can make up for this quickly with the sheer number of tenants you can support.
- More ways to make money. In many cases, multifamily properties also offer landlords more ways to make money. For example, you could consider installing a parking garage and charging tenants for the right to park there, or you could install coin-operated washers and dryers on the premises to make a few extra bucks. You can get creative and increase your revenue even further.
- Simplicity at scale. Apartment buildings and similar multifamily buildings tend to be simpler to manage at higher scales. Dealing with a single building that has 10 units is much more efficient and predictable than dealing with 10 single-family homes that are spread throughout the city. You’ll be dealing with a single location, and oftentimes, an identical floor plan across multiple units.
Getting Started With Multifamily Property Investing
The biggest hurdle in multifamily property investing is getting started. Oftentimes, you’ll need a significant amount of capital to begin, since you’ll need a reasonable down payment on a relatively expensive property. You’ll also need a bit of experience and real estate savvy if you want to maximize your profitability. Consider working with a mentor to learn the ropes, and use a combination of other investing strategies to come up with the initial funds you need to begin.