Benefits of Investing in Multifamily Real Estate
You may have heard that real estate is a relatively stable investment you can use to diversify your portfolio. You may also have decided to research investing in rental properties. However, have you considered purchasing multifamily real estate? These properties have multiple units that can be rented out to different people. These are some benefits of investing in these types of properties
You Probably Know the Property Basics
If you have ever rented an apartment, you know the basics of multiunit properties. For example, they need kitchens, bathrooms, living spaces and bedrooms. They have tenants who sign leases on a month-to-month or annual basis. You probably also understand some of the maintenance that is required.
Passive Income Potential
If you are looking for a passive income, you can hire a property manager to handle the day-to-day management of your multiunit properties. This may be an especially attractive option if you have never managed a property yourself. Established property managers or firms typically charge a minimal fee per unit each month, typically a portion of the rental income. The rest of the rent is sent to you, and you can use it to pay the mortgage, save for future maintenance issues or reinvest into other properties.
Increased Cash Flow
Each month, your cash flow increases as rents are paid. Your rental income will also be predictable, especially if you have high-occupancy and low-turnover rates. The neighborhood and market your property is in will determine both these factors. However, you should be able to rely on a specific amount of cash flow each month.
When you purchase rental or office-type properties, you may have times between tenants, and these periods can be extended if your property is not in a good area or the market is destabilized. With a multiunit property, you have multiple individuals renting from you, so temporary vacancies aren’t as much of a drain on your cash flow. Also, people will always need places to live, especially during recessions when many sell their homes and rent.
Financing Is Simplified
If you purchase 30 homes, you will typically need 30 mortgage loans. This process takes time and money because each home will require separate inspections, down payments, closing costs and other fees. If you purchase a 30-unit apartment building, you have one loan, one down payment, one inspection and one set of other fees. Managing these loans may also be challenging over time.
Commercial real estate often has significantly higher returns than residential real estate, but it tends to be a bit more volatile in some cases. You can have the best of both worlds, and gain some other unexpected benefits, by investing in multifamily real estate.