The Benefits of Investing in a Multifamily Property

The Benefits of Investing in a Multifamily Property

A multifamily property is a dwelling that holds more than one unit, allowing several families to occupy the same building. These types of properties offer several advantages to those who are interested in getting into real estate investing, especially when their resources are limited. By reviewing the benefits listed below, you can determine if this is the right investment opportunity for you.

Reduce Operational Costs

Each property you own must be maintained to ensure your tenants enjoy a habitable residence. In addition to keeping up with repairs, this will involve maintaining the grounds, looking after the HVAC units, and conducting other types of preventative maintenance. This can be significantly less costly when all of your rental units are located within the same building. You’ll save on the time it would take to travel to each location, and you’ll save money by maintaining property features that service multiple apartments.

Save on Property Purchases

A single multifamily building that holds four units is going to sell for significantly less than buying four properties of similar value in the same market. When you live in one unit and rent the others to tenants, you can maximize the return on your investment by reducing your expenses. You’ll also save on property taxes in that you’ll only be paying taxes on one piece of property, even though you’re earning income on multiple units.

Eliminate the Work of Buying Property

For each property you buy, there are several stages to go through, including the assessment, inspection, title search, and offer negotiations. Instead of trying to buy several different properties and going through these steps with each one, it’s simpler and more cost-effective to buy one multifamily home. You can find a property with the number of units you want and save time and money throughout the buying process.

Owning a multifamily home provides many more benefits than those listed here. Overall, this is a better risk because, even if half of your units are vacant, you’re still earning income from the other units. This gives you the time to rent out those other units and maximize your income. Having all of your rental units centrally located will make it easier for you to manage the property and communicate with tenants. Multifamily properties are beneficial to own in a variety of ways, whether you’re a first-time buyer or a seasoned investor.

 

Understanding the Value of Multifamily Real Estate

Understanding the Value of Multifamily Real Estate

Riding the heels of an especially strong housing market, investors are turning more and more toward real estate as a viable and profitable business venture. One of the hottest segments of the real estate market is the multifamily housing sector. Despite being a longer process when it comes to generating income and profit than its single-family property investment counterparts, the multifamily market can be extremely profitable when executed properly.

 

Although it seems counter-intuitive, securing financing for a multifamily property can often be easier than getting the money for a single-family property. The reason for this is because there is a much smaller risk of not generating enough cash flow when there are multiple properties involved. What can often be confusing is calculating the value of a multifamily property because of the myriad of complexities involved. In order to calculate an accurate value, the following considerations must all be examined:

 

OPERATING EXPENSES: This list of expenses can be varied and long. Examples include snow removal, landscaping, pool maintenance, and pest control.

 

CAPITAL EXPENDITURES: Also known as CapEx, these funds are used by the property management or investor to acquire new assets or upgrade existing facilities with the intention of improving or increasing the breadth of the operation. Examples of capital expenditures in multifamily properties include new air conditioning units, roofing replacements, playground additions, water heaters, and more. Property managers will want to set aside larger amounts for annual capital expenditures if the property is older since repairs and upgrades will be more likely. Newer properties will not require as much capital expenditure investment, which will make these more attractive to investors.

 

NET OPERATING INCOME: This definition is self-explanatory. Net operating income is simply the total income generated from the multifamily property after the total operating expenses have been subtracted.

 

CAP RATE: This calculation is a little more specific. It refers to the exact rate of return from the property after income is considered. These rates are distinct to a certain market and drawn by the kind of property class of the investment. To calculate multifamily value, the net operating income of the property is divided by the cap rate. This is why knowing the cap rate is imperative to understanding the overall value.