Multi family real estate investing allows investors to build long-term wealth while experiencing monthly cash flow and increasing appreciation. With apartments and multi family housing, it is easy to amplify your efforts while decreasing your risk.
It depends on your investment goals. Get more income faster with multifamily. More rental units produce higher cash flow and enable your investment business to grow faster than a single-family residential (SFR) property asset. And multi family units are convenient. Instead of juggling properties all over the city, every unit is in one location and under one roof.
Which has the advantage of spreading the cost of expenses, property taxes, insurance, and holding costs across all units to create an economy of scale effect. Vacancies are not as detrimental when all the other units cover the costs, unlike a SFR investment that does not have any other income to cover the expenses.
The biggest drawback is low liquidity. It takes time to sell an apartment building.
And the lack of diversification with apartments and multifamily units means you place all your eggs in one basket.
Yes. Starting with a fast cash flow infusion from recurring monthly rental income.
Generous tax benefits.
Appreciation as the equity in the property increases as tenants pay off your mortgage. You can boost the appreciation. By creating value with repairs and repositioning. Add amenities, update the exterior of the building, and the interiors with premium appliances, counters, and flooring, then increase rental prices.
Increase operational cash flow. Improve the management and add a new tenant mixture and fill the vacancies. Collect past due rents and increase service fees.
Create supplementary income with laundry and vending machines or storage and parking space rentals. Community, clubhouse, and pool areas can be rented for special events.
Shifting the utility costs of electric, gas, and water to the tenants decreases operating expenses and increases revenue.
Leverage OPM and mortgage the property.
You retain control of the property.
Look for a strong capitalization rate of 10% or more.
The 2% Rule indicates the possibilities for cash flow. 2% of the purchase price needs to equal the monthly rent amount. However, the 2% rule does not consider the property's location, condition, demand, or depreciation and appreciation.
Estimating is sufficient for a glance, but it is vital to do due diligence. Collect accurate data and combine it with other valuation and exit strategies to make an informed investment decision.
Determine the type of building.
Choose multi family properties close to employment, shopping, public transportation, and schools.
Class A: Luxury rental housing. High end / High rise. The investor gets slow, steady appreciation with low cash flow and low risk.
Class B: (my favorite) Apartments for working people who choose to rent instead of buy. These properties cater to the young lower to mid-level professionals who stay and pay. The investor gets rapid appreciation with stable cash flow. Plus low maintenance costs.
Class C: Rentals for working people who can not afford to buy a house.
Perfect for blue-collar and management-level employees. The investor gets moderate appreciation and steady cash flow.
Class D: Properties for low-income families usually subsidized section 8 housing. These properties are more likely to create the most cash flow but with most managerial problems and repairs. Best solution- use a property management company to eliminate the headaches.
Pro Tip: The best multi family properties are low maintenance and have the ability to withstand wear and tear. Although, the property perfect condition, always factor in at least expenses of 3% for maintenance cost.
Duplex, Triplex, Fourplex
Bungalow and stand alone units
Garden Apartments and Townhouses
Multi Story Apartments
High-rise apartment Buildings
You're looking for under performing properties with low cash flow and high vacancy rates. The ugly one that needs repairs is ideal for multi family real estate investing. These properties offer an opportunity to increase cash flow, stabilize the capitalization rate, and turn the asset around.
Burned-out, disgruntled landlords evicting their tenants, listings Zillow, and probates properties are great sources for finding apartment buildings. They're motivated and often provide owner financing, primarily if they have owned the property for ten years or more. And in some cases, if they believe you'll turn the apartments around and create a positive cash flow, they'll wait to be paid and take an equity split.
Multifamily apartment buildings are more expensive than SFR and require higher startup costs and down payments. Conventional financing for 30 years with 20% down and moderate interest rates are normal terms. Financing focuses less on the investor and more on cash flow, a projected, potential decrease in vacancies, and the property's condition.
Syndications and partnerships are creative financing methods that work well for apartment buildings. Working together using other people's money (OPM) allows for the purchase of better and more significant investments, maximizing profits and decreasing risk.
Pro Tip for multi family real estate investing advantage. Every 4-5 years, you'll want to refinance, take the equity out of the property, and put it into your business with no taxes and no capital gains. You get to keep the property, cash out, and rebuild equity. It can be a never ending cycle. As Warren Buffett famously said, "Our favorite holding period is forever."
If you decide to be a do- it-yourself Landlord, then you'll need an end-to- end property management system. Easily, manage properties with an online cloud based system to fill vacancies, advertise rentals, accept applications, screen tenants, collect online payments, sign leases remotely, track property maintenance, pay bills, full accounting. The Landlord command portal gives you access to a website for your company that automates all the leasing work. The software will also keep your company legal and compliant with financial reports, leases and 1099s.
For less than the cost of cable, systematize and optimize your entire landlord business for total Property Management Peace of Mind.
Or leverage the expertise of a leasing agent or a Realtor to manage your multi family rentals. They'll handle all the property's legal aspects in a professional and timely manner. Free up your time and eliminating headaches. Although the fee is usually 10% of the monthly rent and an additional fee for onboarding new tenants and processing fee for move outs. Many investors find that the expense of a designated professional property management company is worth the price.
How To Find Tenants For Rental Property
Create a home for your tenants instead of a place to live and they will reward you with long term leases and word of mouth advertising to their family and friends.
Pro Tip: Keep your vacancy rates low by offering what your competition does not.
Give them what they want. The National Association of Residential Property Managers (NARPM) and Buildium surveyed both tenants and property managers, and these are the results.