What is a multi family real estate property?
A multi family real estate property is a type of investment property which houses multiple units to rent out. As an investor, you will be responsible for more than one property unit and more than one tenant or tenant family. Multi family real estate investments are great because they’re suitable for both expert as well as beginner real estate investors. And they are becoming more and more popular among real estate investors today for multiple reasons.
Reasons to invest in a multi family real estate property
One reason why multi family real estate properties are a great idea is the fact that they yield high ROI, or return on investment. Before investing in any property, you need to make sure that it has a high ROI percentage. Return on investment will tell you the ratio between your net profit and the cost of your investment and will help you evaluate the profitability of your investment. Using Mashvisor can help you attain some of these values among others such as CoC return, expected rental income, and cap rate.
Moreover, investing in a multi family property can be less competitive than investing in single family homes. While they are gaining popularity in the real estate industry, single family properties remain much more popular among real estate investors. So you’re more likely to achieve higher profits.
Additionally, with a multi family real estate property, you’re more likely to have higher occupancy, whether you’re investing in an Airbnb property or a traditional property. If at least one of the multiple units you own is occupied, you won’t have 100% vacancy, and you’re still generating rental income. Whereas if you’re investing in a single family property, if that property is vacant, you won’t be generating rental income at all. This is to also say that investing in a multi family real estate property can be less risky than investing in a single family home.
One last point to consider when investing in a multi family real estate property is the fact that they can be easier to finance. While it is a bigger investment than single family properties, it’s usually easier to get a loan to finance your rental property since your likelihood of generating return is higher.
Related: What Are Your Options for Financing for Investment Properties?
How to buy your first multi family real estate investment property
Now, to the question of this blog: how do you actually buy your first multi family real estate property?
One thing that’s important to mention is the fact that investing in a multi family real estate property is not very different than buying a single family real estate investment property, especially when it comes to investment strategies. But there are a few things that you need to keep in mind.
For one, you have to figure out and manage your budget. How much do you have saved up and what property can fit under your set budget? Think about ways to finance your investment property. Consider costs like renovation and repair costs, your down payment, your mortgage payments, among other costs.
Another crucial detail you should bear in mind when buying your first multi family real estate investment is property management. Multi family properties can be more difficult to manage simply since there are more units to take care of. This fact is specifically true if most or all units are occupied by tenants. Many investors consider professional property management services to make matters easier. One can argue for and against hiring property management services in real estate investing but often times, they can be quite essential and very helpful and profitable.
Related: When Should Real Estate Investors Hire Professional Property Management?
You truly cannot invest in real estate without taking different legal real estate issues into account. Look into specific city and state laws, especially if you intend to rent out your properties on Airbnb. Several cities such as New York City and San Francisco have had ongoing legal battles with home-sharing services such as Airbnb, and impose stricter rules than other cities. This is why it’s very important to research and familiarize yourself with real estate laws in the city or area you’re investing in.
One more factor you need to keep in mind when investing in real estate, in general, is the performance of your investment property. Make sure you devise a mechanism to upkeep performance and make sure you’re actually profiting from your investment and that it is a viable one.
Where to invest in a multi family real estate property
Finally, location. Location is a word you will hear over and over in the real estate industry, and it’s as important as the number of times you’ll hear it. And when it comes to buying a multi family real estate property, location is no less important. Los Angeles, San Diego, Las Vegas, Miami, and Phoenix are all among the top performing markets in the nation when it comes to buying a multi family real estate property. To make your search easier for the above cities (and others), check out Mashvisor’s heat map feature. You can browse through the best places to invest in real estate by a visual representation of a one of a kind heat map. You can find markets with the best performance and ones that yield high returns by a mere visual colored representation of where it is best to invest in a multi family real estate property.
A final word on multi family real estate properties
To sum up, investing in multi family real estate properties can be very profitable, especially in this low competition niche of the huge US industry. And while buying a multi family real estate property can be similar in process to single family investments, the way in which you manage your property and tenants, the locations you search for, and the upkeep of performance, can all vary.
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Related: Why You Should Buy a Multi Family Investment Property in 2018