There are plenty of ways to invest in real estate, and multi-family housing is a popular one.
Multi-family properties are basically homes that are incorporated into one larger complex, whether it’s an apartment building, duplex, triplex, or multiplex. Essentially, the homes are structured in such as way that they are able to house multiple families in the same complexes, though all separate from one another.
Multi-family housing investments can be a great option for many investors instead of just investing in a single family home, but perhaps not so much for others. There are obviously certain advantages to investing in this type of real estate, but there are also a few drawbacks as well. That’s why it’s so important for investors to weigh both the pros and cons of such investments before jumping in with both feet.
Pros of Multi-Family Housing Investments
Let’s get into the advantages of investing in a multi-family complex:
Bigger profits. Obviously, the more families living in the complex that you purchase, the bigger your cash flow is going to be. Collecting rent from several units as opposed to just one will bring in a larger flow of income. As long as the rent is paid on time and the amount you charge more than covers the operating costs, you stand to make a bigger profit with a multi-family complex as opposed to owing just one unit or a single-family home.
Less risk with tenants. If you only have one unit, the risk of vacancy is much higher. You’re depending on that one unit for rent collection. But with a multi-family complex, you’ll have a number of units on your hands. Even if you’ve got one vacancy, it doesn’t represent the entire makeup of your vacancy rate.
Even if one unit becomes vacant, there are still other units that are filled and bringing in rent money every month. And if one of the tenants happens to neglect to pay rent on time or is difficult to deal with, a multiple tenant situation probably won’t result in all tenants being a problem all at the same time. In this way, you won’t be putting all your eggs in one basket.
The value will hold over time. Multi-family properties are usually valued according to how much potential they have to generate a positive income every month. They’re typically purchased exclusively by investors, and if these properties are able to prove a decent income through rent, they’re usually able to maintain their value over the long haul.
Mortgage are easier to get. If you’re planning to buy a number of investment properties, you might find it easier to get one mortgage for a multi-family property as opposed to buying many single-family properties. Not only will it be easier to get approved, but it will also be easier to manage one loan under one lender instead of many if you were to purchase several separate properties.
Cons of Multi-Family Housing Investments
As great as multi-family property investing may be, it’s not without its drawbacks.
Cost. You can always buy just one single family home to rent out and collect income on. This will still bring in some level of income while costing you far less to purchase. Obviously, buying a multi-family complex is a much larger financial transaction than a single-family property.
Many first-time investors might choose to start smaller and get in the market with a single-family property at first before jumping into a multi-family property investment simply because of the high price tag attached to such an investment.
More tenants equal more hassles. A single-family home investment means you’ll only be dealing with one family With a multi-family complex, on the other hand, you’ll be dealing with multiple tenants. While this can mean your profits will be higher, it also means dealing with several tenants at once which can be more time-consuming and more of a hassle.
Further, if there’s an issue with the structure, you’ll have to deal with complaints from all tenants at once, which can translate in more headaches and higher maintenance/repair costs. That said, you can always hire a property manager to tackle these issues for you. While there is a cost associated with this type of assistance, it is typically tax-deductible.
Fewer properties available. It’s a lot easier to find a decent single family home to buy for investment purposes than it is to find a multi-family complex that checks off all the boxes. Multi-family homes are not as readily available to as single-family homes for a number of reasons, including less demand and higher purchase prices. As such, it can be more of a challenge to find the perfect property at the right price that meets all of your needs and wants.
The Bottom Line
Investing in any type of real estate can prove to be highly profitable and provide long-term wealth when done right. And multi-family properties provide investors with just one of many ways to realize a profit and bring in a handsome income every month. But there are always considerations to make before choosing this type of investment over others. Work with an experienced real estate professional to help you navigate the realm of multi-family home investments to make sure this is the right path for you.