Starting a real estate business begins with small baby steps. Initially, it will be one step at a time; you buy your first investment property and slowly diversify and grow your portfolio to harness long-term financial freedom. Buying multi family homes for investment sure has its advantages but, with that said, it is a bit trickier than residential real estate and doing it all on your own will be even more challenging. In this blog post, we discuss the perks of investing in multi family homes and whether or not it is necessary to join efforts with a commercial real estate agent to help you win big.
5 Perks of Buying Multi Family Homes for Investment
1. Economies of scale
Defined by Investopedia, when more units of a good or a service can be produced on a larger scale, yet with fewer input costs, economies of scale are said to be achieved. To apply this to real estate investing, economies of scale refers to growing your returns and wealth while, at the same time, reducing the overall cost of operating and managing your investment properties. This means as you grow your multi family homes in one place, it becomes more feasible to decrease your overall cost of running your real estate business.
To drive the point home, buying multi family homes for investment implies the following; there is one lawn to mow, all your tenants are within walking distance, which means collecting tenant rent is much easier and can be done in one go, and property maintenance and upkeep is also much easier. If you were to ask a commercial real estate agent, he/she will tell you that buying multi family homes for investment allows investors/landlords to scale their business at a faster growth rate than buying one single family home at a time.
2. Property management makes the most sense
Hiring a property manager to look after your multi family homes makes the most economical sense and reaps the most financial returns on investment, as opposed to hiring a property manager to look after one single family home. In other words, the cost of hiring a professional to manage your multi family home is definitely a sound business decision because the real estate return on investment will outweigh the overall cost of management fees.
3. Mitigate overall real estate risk
In tandem to the previous points, diversifying in real estate is crucial to mitigate your overall risk. One way to go about this is by buying multi family homes for investment to achieve economies of scale and reduce the overall risk of incurring major financial dips in real estate investing.
4. Forced appreciation
Single family homes are appraised based on comparable properties (or real estate comps). On the other hand, if you’re buying multi family homes for investment, these properties are appraised based on the overall net operating income. So, this means that investors and landlords have much more control to force appreciation on multi family homes by driving up the overall income!
5. Less competition
Because of the strongly held belief amongst real estate investors that buying multi family homes for investment is too costly and hard to manage, many choose the more popular real estate strategies (such as fix and flips and single family homes) to stay on the safe side. This, in turn, makes way for less competition for buying multi family homes for investment to capitalize on untapped opportunities in the market and win big.
5 Tips to Invest in Multi Family Home
1. Choose the right commercial real estate agent to help you
It is crucial for your financial success to choose the right people with the right expertise to help capitalize on profitable real estate investments and make big bucks. When buying multi family homes for investment, this is even more crucial due to the size of the investment. The right professionals can cut your time and cost in half! They can speed the process and find what you are looking for in much less time and effort.
2. Do your due diligence
Hiring the right real estate professionals will not only guide investors and landlords through local practices and customs but will also help determine the most important items to review during due diligence.
3. Keep a financial cushion
Always be prepared for unexpected events that might lead to major financial disasters or/and financial hiccups while running your real estate business. A rule of thumb is to save around 10% of your rental income and put it to the side for unexpected turns of events such as market declines, vacancies, etc.
4. Property management is good for your business long-term
5. Know what you are getting into from the get go
Can you manage a rental property on your own? Ask yourself this question before anything else.
Should You Hire a Commercial Real Estate Agent?
If you are buying multi family homes for investment, the answer is YES and here is why:
- A commercial real estate agent will save you time. This entails looking through listings, researching rental properties, scheduling tours, drafting offers, etc.
- A commercial real estate agent will save you money. They will know which properties are the best deals and how to negotiate the price and the terms of the transaction.
- A commercial real estate agent will give you greater access. Not all real estate listing platforms are available to the public, and hiring a professional will give you access to these platforms.
- A commercial real estate agent will get you a better price. They have the right negotiation skills and tactics to get you the best bargains for your real estate investments.
Real estate investing is the way to go to secure your retirement and build a financial cushion for a lifetime. However, choosing your real estate strategy should be aligned with your business plan, long-term vision, and financial resources. Investing in real estate and starting a real estate business, in turn, will take some time and hard work. BUT, you don’t need to work long hours because most investors and real estate agents use online tools like Mashvisor’s investment property calculator to increase their financial wins to capitalize on positive cash flow properties in less time!
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.