If you’re investing in real estate, consider investing in multifamily homes. These types of properties can be great for people who are looking to expand their investment portfolio. Before you start investing, it’s crucial to thoroughly consider the various risks and rewards associated with this type of investment.
Multifamily homes are typically residential properties that have multiple families living in them. They feature multiple living units that each have their own bathroom and kitchen.
Multifamily investment properties are commonly referred to as apartment buildings or complexes with multiple units. These properties can range from two-family duplexes to high-rise buildings with hundreds of units.
Before you start investing in multifamily homes, it’s vital that you thoroughly consider the various risks and rewards associated with this type of property.
Pros of Multi-Family Property Investment
One of the most significant advantages of investing in multifamily real estate is that it provides a steady monthly cash flow. Unlike single-family homes, these types of properties have multiple families living in them. If there’s a vacancy in one of the units, the cash flow from the other tenants will still be there.
The fair market value of multifamily properties will typically be higher than single-family homes. When securing financing for investment properties, it’s easier for banks to invest in this type of property than in single-family homes. Also, since the cash flow of a multifamily property is more predictable, it can lower your interest rate.
Multifamily real estate can provide numerous tax benefits, such as deducting the various maintenance and operational costs associated with a property.
Even if the property’s value is technically rising, you can still take advantage of the cost segregation and depreciation tax benefits.
Cons of Multi-Family Property Investment
Despite the potential profitability of a multifamily property, the upfront costs are typically high. In most expensive cities, such as New York or San Francisco, the cost of building a small apartment complex can be several million dollars.
Even though banks usually provide a reasonable interest rate, you’ll still have to come up with a down payment of around 20 percent. This is typically a high amount for most investors.
Competition for Properties
Due to the numerous advantages of investing in multifamily real estate, it’s often recommended that experienced investors consider this type of property. These properties will typically be in high demand in an excellent rental market.
Even if you can secure a multifamily property through a down payment, it’s still not enough to beat the competition. You’ll need to manage multiple units to keep the property looking its best.
If you are a first-time investor or have limited experience with property management, hiring a company to handle the day-to-day operations of a multifamily home may be a must.