The Perks Of Multifamily Investing

For better or for worse, the phrase multifamily investing has been associated with a certain degree of stigma. Far too many investors are intimidated by the word multifamily, as its very name conjures up visions of stressful working conditions. However, it is important to note that the fear of multifamily investing is not warranted. In fact, multifamily investing can be a great way to scale a real estate business and realize success on an entirely different level.

I am convinced that the misconceptions regarding multifamily investing have gone too far; more units do not necessarily translate into more work. You could very easily argue that multifamily properties are easier to run and more efficient than their single-family counterparts.

Let’s take a closer look at some of the reasons you may want to consider making the jump to multifamily investing sooner rather than later.

The Pros Of Multifamily Investing

As a viable exit strategy in today’s real estate market, it would benefit investors to know why exactly multifamily investing is attractive on so man levels.

Scaling: As it turns out, multifamily investing is one of the best ways to scale a real estate business. Nothing, as far as I am aware, allows you to accomplish more with less than investing in a multifamily property. For what it’s worth, buying a four-unit multifamily property to rent out is the same thing as buying four single-family homes. There is, however, one caveat: multifamily property transactions only consist of one transaction, whereas each individual single-family home you intend to buy will be accompanied by its own transaction. So while the end game is essentially the same, the means of getting there is made much easier by acquiring multifamily properties.

I encourage those new to the investing game to strongly consider multifamily properties if they are toying with the idea of scaling their business. In short, it is much more efficient — both economically and timely — to acquire a multifamily property than to pursue several single-family properties with the intentions of renting them out. While the profits will vary dramatically based on location and property type, you can argue that it is much easier to increase your spreads through the acquisition of a few multifamily properties rather than several single-family homes.

Management: Multifamily investing is not made any harder by the fact that each property has more than one unit. In fact, you could argue that a multifamily investment property is a lot easier to manage than most would assume. While the idea of multiple tenants may sound intimidating to the unseasoned investor, consider this; multifamily properties share several features that will make managing the property much easier. Whereas four single-family properties would require landlord to maintain four separate roofs and four separate lawns, a single multifamily property with four tenants may only have one of each.

Control: “Comparables” have become the gauge in which the average landlord will set their asking price for a respective property. If for nothing else, the easiest way to come up with a fair price is to match the properties that are offering a similar “product”. What’s more, potential tenants will compare your home to those that are close by and reasonably similar.

It is important to note, however, that the most accurate comparables for a multifamily unit are those located in the same building. Those that own multifamily units have slightly more control over how much they can rent a place out for. It is entirely possible to pay “fair market value” for a poorly managed property, make the right renovations, raise the asking price and decrease costs. While you will want to ask for a reasonable price, as to not price yourself out of the market, the rent you can potentially receive is more contingent on your own properties than other investors in your area. Who doesn’t like to be in control of their own destiny?

Risk Mitigation: Unlike single-family homes, multifamily investing offers investors something that can only be described as diversification. Instead of relying on one tenant to pay rent, multifamily investors expect to receive multiple streams of cashflow from a single property. In other words, if one tenant leaves, there are still others paying rent. Single-family homes, on the other hand, will have investors place all of their eggs in one basket. The second a tenant refuses to pay rent is the moment landlords lose out on cashflow.

Again, multifamily investing is a great way for new investors to get their feet wet. However, like any other exit strategy, these properties will require you to mind due diligence. Though multifamily investing offers investors significant advantages, there are several things to consider before making the jump yourself. For starters, the upfront cost can be a little intimidating. Buying a multifamily property is more expensive than buying a single-family home in most cases. There are, of course, exceptions to the rule, but multifamily properties are typically more expensive. It is important to note, however, that they are an investment; they will come with higher upfront costs, but can reward savvy investors who remain committed. Done correctly, multifamily investing can result in multiple streams of income from a single property.

If you are considering making the jump from single-family homes to multifamily investing, I encourage you to mind due diligence. While multifamily homes are certainly a great opportunity, they will require a different exit strategy. There will be some concepts that carry over from single-family investing, but there are subtle differences you will need to acknowledge. As long as you do your homework, run the numbers, and stick to your plan, multifamily investing could be the best move you make as an investor.