Building Wealth With Multifamily Real Estate
Are you a real estate investor or want to become a real estate investor? Either way, you are at the right spot if you are looking into investing in residential properties. When it comes to residential properties, there are generally two niches naming single-family properties and multi-family properties.
Though both can be beneficial from the investment perspective, beginners are advised to go for multifamily properties. A multifamily home or building can be defined as a cross between a single-family house and a condominium. The structure and the land are both owned and documented in a single deed.
To further understand how multifamily real estate could be the one for you, keep on reading…
Monetary Benefits Of Investing In A Multifamily Property
Investing in multifamily homes is a very popular approach among investors due to the high monthly earning, which slowly but consistently increases. This factor fulfills the concept of the time value of money, meaning that as inflation increases, your income plus the value of the property also increases.
The following are some of the perks of investing in a multi-family property:
Higher Income Opportunity
Investing in multifamily properties has a lot of appeal. Contrary to a single-family home which only generates a single monthly income, a multifamily home creates many monthly revenue streams. By investing in a multifamily property, you can create additional income from a single investment that could further be invested, leading you to build a good investment portfolio.
You can also choose to reside in one unit while renting out the others to generate money. Thus, a multifamily property is an excellent way to earn passive income or even as your retirement investment.
If you are wondering between investing in a single-family home and a multifamily home, go for the multifamily property if you have the means. It’s a general rule of thumb that the more income a property generates, the higher is its value and multifamily homes generate more income than single-family homes as they have more units.
Less Riskier with Constant Income
Due to a large number of tenants in a multifamily home, your investment is at little risk. In the case of a single-family unit, if it’s vacant or the tenants are unable to pay a month’s rent, you are at a loss. In contrast, in the case of the multifamily home, there are a lot of tenants, and if one or two units are vacant, others are occupied, and if one tenant is unable to pay rent, there are other tenants who are paying their rents. So, it’s a win-win situation.
Grows Your Real Estate Investment Portfolio
When it comes to investors, their investment portfolio and its scalability matter a lot. Real estate investors are always looking for ways to grow their investment portfolios.
Investing in a multifamily home is like investing in multiple properties. This can increase your investment portfolio’s value and give you much more experience than investing in a single-family home.
Excellent For Real Estate Management
Sometimes investors don’t have enough time to handle their investments and want someone to do that work for them. In most cases, single-family buildings do not generate enough revenue to allow engaging a property management firm.
On the other hand, a multifamily property can generate enough revenue for you to engage a property manager to handle operations and any necessary repairs. This comes as a huge benefit for investors who want to be less involved with their rental homes.
Taxes are like a pain in the ‘you know’ for everybody; no matters what you do, taxes are there to be paid. When it comes to investors, they are constantly seeking ways to pay less tax or gain tax benefits.
If you are investing in a multifamily property, you should be happy to know that it provides significant tax advantages. As an investor, you can use depreciation to offset a significant portion of the rental revenue that you get each year from your multifamily property.
How To Finance A Multifamily Home?
The main question every investor thinks about is the financing of the property. For a multifamily property, you can finance your purchase through a mortgage. Usually, banks require 25 to 30 percent from the borrower when acquiring a property. It means the loan-to-value ratio is 70 to 75 percent.
It’s quite challenging for beginner investors to a large down payment. So, owner-occupying the property is one method to get around this restriction. This way, you have to pay very little down payment and lower the interest rate on the mortgage. But if you don’t intend to owner-occupy the property, the interest rate would be much higher.
Also, a necessary point to remember is that the multifamily homes with 5+ units typically come under commercial property, so they have different conditions than purely residential homes, such as high interest rates and greater debt-to-income ratios.
How Much It Costs To Maintain A Multifamily Property?
The cost of maintaining a multifamily property varies considerably based on the structure’s size, location, and condition. Maintaining a new multifamily building is less expensive than maintaining an old one. On-site facilities also play a big role concerning the matter. A property with a spacious garden, pool, and gym costs more to maintain than a typical two-unit property.
If you want an idea about how much you should spend on maintenance, then for a smaller multifamily property consisting of 4-50 units, the cost you should spend must be between 10% and 15% of the NOI. For a larger multifamily property, such as more than 50+ units, the cost should be between 5% and 10% of the NOI.
Every investor wants a secure investment, and multi-family real estate can be a very secure investment with a passive income. Investing in multifamily real estate allows you to earn more money than you could with a single-family home. They are great for individuals wanting to expand their real estate portfolio while also reducing risk when it comes to producing monthly revenue.
At The Fortis Company, our mission is to create long-term growth by utilizing our expertise and relationships to expand markets by improving operation practices. If you’re interested in learning more about private equity investing, contact us today!