Why investing in multi-family rental properties is the best real estate strategy

My uncle and I are multi-family investors. We specifically focus on 2-4 unit residential multi-family investment properties.

Investing in multi-family properties is worth considering, especially when starting out, because it optimizes your cash flow by maximizing rental income and minimizing expenses.

MAXIMIZE RENTAL INCOME

Multi-family investors know that rental income is almost always higher for multi-family investment properties compared to single-family homes. This is critical in today’s market.

Because they only have a single income stream, many single-family rental properties often struggle to cover monthly expenses (assuming you need a mortgage). In contrast, with small multi-family rental properties, you are not dependent on a single income stream, making it less risky. For example, if you have a 4-unit property and 1 unit is vacant, you are still generating rental income from the other 3 units. Conversely, if a single-family rental becomes vacant, it won’t generate income of any kind until you get a new tenant.

The bottom line is that properties with 2 to 4 units have rents that are typically 2 to 3 times higher than single-family homes. Also, the impact of vacancies is much less. So the cash flow is better.

MINIMIZE EXPENSES

As mentioned above, investing in multi-family properties helps optimize cash flow because they enjoy higher rental income and lower risk of vacancy by virtue of having multiple units. Meanwhile, unit ownership costs will generally be lower. Specifically:

• Prices for multi-family properties are typically lower per unit. For example, in my market, I could buy a single-family home in a low-income neighborhood for about $ 120K. You could buy a duplex in the same area for $ 150K. So in this example, you’re essentially paying $ 120K per unit on a single family home, but only $ 75K per unit on the duplex. Generally, the cost per unit goes down the more units you have on a particular property.
• You will avoid commercial status – Any property with more than 4 units is considered commercial. This lends itself to higher expenses. For example, interest rates on business loans are typically 1% to 2% above similar non-business loan rates, and down payment requirements are typically higher (sometimes 25% or more). ). Other expenses like construction insurance, rental property tax, and water / sewer also tend to be higher.
• It will minimize inspection scrutiny – Inspection requirements are often more stringent on “commercial” properties, which lends itself to higher repair and maintenance bills. For example, in New Jersey a 5-year state inspection is required for all commercial properties, in addition to inspections by the local municipality. By contrast, New Jersey duplexes are not subject to state inspection.

OTHER TIPS AND MULTI-FAMILY OWNERSHIP DATA

• Most multi-family investors use a rental property agent who specializes in multi-family investment properties. And you should too. Ideally, your agent will have his or her own portfolio of multi-family properties, although this is not a fast and strict requirement. The bottom line is that if you want multi-family investment properties, it makes sense to work with an agent who has extensive knowledge in this area.
• Typically, older properties (50 years or older) in older neighborhoods offer the most value.
• Obviously, the rental listing is strongly correlated with the property’s valuation, and this is determined in part by the number of bedrooms in each unit. So all things being equal, you’ll want properties with multi-bedroom units. Not only do 2-3 bedroom units charge more rent, but they also tend to have a more stable tenure. One-bedroom apartments often attract more passerby population, which means turnover is typically higher.
• Avoid properties with wells and septic systems because they could create many additional problems and expenses in the future.
• Focus on single-family single-family homes. In other words, avoid twins, condos, townhouses, etc., because these types of structures are generally not as appreciated as separate structures.

RESUME

So there you have it. The bottom line is that multifamily investors “get it.” They understand that investing in multi-family properties:

• Maximize rental income through multiple sources of income and reduce the risk of vacancies.
• Minimize expenses through a lower purchase cost per unit and avoid “commercial grade” inspection, mortgage, tax and utility expenses.

These are the main reasons why investing in multi-family properties is the best and safest way to immerse yourself in the wonderful world of investing in rental properties.