Investing in a multi-family investment property is an interesting experience for every landlord. So if you are considering to invest in a multi-family investment property, you should know everything about that type of investment, right? In order to prepare your management skills, we will present you with the ins and outs before you start investing in multi-family properties. Keep on reading to find out what are the benefits of investing in multi-family properties as well as how can a real estate investor make his/her multi-family property generate positive cash flow.
#1 What Is a Multi-Family Investment Property?
A multi-family investment property is also known as a multi-dwelling unit. It is a type of residential housing with two or more housing units in one building complex or under one roof. Usually, those are townhouses as well as some types of condos. Most of the housing units have a separate bathroom and kitchen as well as a private living space. Multi-family real estate properties are typically found in heavily populated areas like cities where the territory is at a premium. Multi-family investment property can be owned or be used as rental units where a landlord can collect rental income from his/her tenants. Do you want to learn more about multi-family real estate investing? Make sure to read “Understanding Multi-Family Real Estate Investing from A to Z”
#2 What Are the Differences Between Multi-Family Real Estate Properties and Single-Family Investment Properties?
One of the great debates in the world of real estate investing is whether you should invest in multi-family real estate properties or in single-family investment properties. Each real estate investing strategy has its benefits. However, there are also differences. For instance, a multi-family investment property is more suitable for forced appreciation. This is due to the fact that if you make an investment in the common area of the property, the value of each unit will increase. Another thing to help the real estate investor in generating a positive cash flow is the benefits of tax breaks. We will examine the differences in detail.
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Tax Breaks
When your rental strategy is to provide a home to many potential tenants through a multi-family property, you are doing a good thing, right? Therefore, when you help many future tenants to find their home you should receive some type of a reward. This is so due to the fact that the government supports such good deeds. Consequently, you have all the chances to receive tax reductions or using professional terminology, you would receive tax breaks.
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Forced Appreciation Is Easier to Get with Multi-Family Investment Property
I guess you all know what real estate appreciation is? Still, let me quickly explain. Appreciation is when your investment properties increase in value over a certain period of time. However, when you are in a real estate investing business you cannot just sit and depend on time. You should forget about such type of management. If you want to be a successful real estate investor, you should know how to push things in order to increase the value of your multi-family property or your single-family investment properties. The main difference here, as mentioned above, is that by making one change in multi-family homes, you increase the value of each unit. By improving the facilities and comfort in a multi-family investment property, there will be an increase in the property’s appreciation. This will be the so-called forced appreciation. You should know that you will be able to see the returns on investment much faster in multi-family investment property than in single-family investment properties. This might also reflect on your choice of a property which generates positive cash flow.
#3 How to Locate the Best Real Estate Investments: Multi-Family Real Estate Properties?
Finding the best real estate investments is vital to the success of any real estate investor. In order to get rich, you should choose the best investments while considering the optimal rental strategy for each of them. However, this is not simple. You cannot just start investing in multi-family properties and expect that in no time all your housing units will be occupied. So what is the best way to figure everything out? Well, it is using Mashvisor’s investment property calculator as well as Mashvisor’s heatmap to guide you through the process of finding the best places to invest and deciding on the optimal rental strategy. Here is why:
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Mashvisor’s Investment Property Calculator
A tool as Mashvisor’s investment property calculator does much more than estimating the capitalization rate, potential rental income, cash on cash return, etc. Mashvisor’s investment property calculator can provide you with in-depth neighborhood analysis. Moreover, it indicates the optimal rental strategy for your investment property. How so? Well, the tool takes into account the demand for rentals in the area as well as the property type. Another important thing is that Mashvisor’s investment property calculator allows you to choose a financing method. This is a great advantage for real estate investors as they can specify mortgage payments and receive a more precise outcome.
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Mashvisor’s Heatmap
As we all know: “Time is money” and sometimes searching for the best neighborhood may take you a lot of time. However, with Mashvisor’s heatmap you will be able to select the best area in just a few minutes. How does that happen? All you need to do is to select a city and Mashvisor’s heatmap will divide the neighborhoods. This happens on the basis of real estate metrics. The great thing is that the map will show you performance results, colored accordingly. This will allow you to easily spot the best investment areas and potential successful properties in them. Such service helps a real estate investor to choose the best neighborhood for his/her multi-family investment property. If Mashvisor’s heatmap is something new for you, or you want to learn more in order to use it, make sure to read “How to Find the Best Investment Property Using a Heatmap”
#4 What Are the Factors that Affect Capitalization Rate When Investing in Multi-Family Properties?
The capitalization rate, or how it is also known “cap rate” is one of the most important metrics of investment property returns. The capitalization rate measures the rate of return on all cash properties. But how to calculate cap rate? To calculate it, you need to divide the net operating income by the current market value of the property. Are you curious to learn more about investment property returns? Make sure to read “Understanding Multi-Family Investment Property Returns and Benefits” but for now, let’s learn more about cap rate and the factors which influence it.
Capitalization rate = Net Operating Income / Current Market Value
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The Location
I guess you are familiar with a golden rule in real estate: “in real estate, location is everything”. This is because the value of any property and its cap rate are determined by the location’s rental demand. Additionally, the price you charge for your rental units might vary due to the location as well. So, keep that in mind.
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The Asset Type
The multi-family investment property is among the properties, which are associated with the lowest cap rate on the market. This is due to the asset type. Such properties are low-risk ones as there is a high demand from tenants.
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