Real estate investing can be a great way to earn passive income and diversify your investment portfolio. However, with the real estate industry offering several investment options, it can be difficult to determine the best way to invest. The chaos that has been brought about by COVID-19 also adds to the confusion. Nevertheless, if you are looking to invest in real estate in 2021, consider investing in multifamily homes.
A lot of real estate investors choose multifamily investing over other avenues. But why are multifamily properties a good investment for 2021? Here are 6 reasons.
6 Reasons to Invest in Multifamily Homes in 2021
1. More people will be renting
With the decline in investment property mortgage rates and growth in wages, you would expect that homeownership would be more affordable now. However, other market factors have made it even harder for the average American to acquire a home.
The current crisis has forced many aspiring homeowners to delay their plans to buy homes. This means that it’s likely that more people will be renting in 2021. And since most people can’t afford to rent single-family homes, investing in multifamily homes would be a wise move.
2. The multifamily sector has historically remained strong amid economic uncertainty
As history shows, multifamily real estate can weather economic storms. In the past two recessions, multifamily outperformed all other major real estate sectors. Generally, the total rent decline was lower, and rent recovery after the recession was faster. Amid the current climate of economic uncertainty, investing in multifamily homes would give you peace of mind.
With many experts predicting a downturn as a result of the pandemic, you want to invest in properties that can succeed in all economic climates. That’s why investing in multifamily homes is a must in 2021. It still remains a strong investment opportunity amid economic uncertainty. Although the pandemic has impacted all property types, we can expect the multifamily sector to continue with the resilience.
3. Lower vacancy risk
The coronavirus pandemic has caused millions of people to be unemployed due to the closure of many businesses. There are many people who have lost their jobs or have had their income affected in a way such that they can no longer afford their monthly rent.
If you invest in a single-family home and it ends up being vacant for some months, you would struggle to cover your mortgage payments and other expenses. Investing in multifamily homes limits this risk. Even if one or two of the units are vacant or if those tenants can’t pay rent due to COVID-19 hardships, the other units would provide a financial cushion. If you do proper due diligence before buying a multifamily home, it’s very unlikely that you’ll have a 100% vacancy no matter the economic situation. With this safety net, you are less likely to go into foreclosure.
4. They are easier to finance
Generally, the cost of acquiring a multifamily home will be significantly higher than that of a single-family home. So you would expect that securing financing for a single-family home would be much easier. On the contrary, you are more likely to get approved for a loan to purchase a duplex or fourplex than a single-family home. They are easier to finance because the lender will be taking on less risk.
Additionally, if you invest in a multifamily property, live in one of the units, and rent out the rest, you can qualify for an FHA loan. For a beginner real estate investor, this can be a great strategy because FHA loans require a very small down payment compared to other investment property loans. Your FHA down payment can be as low as 3.5% of the multifamily property’s purchase price.
If the rental income from your multifamily home is enough to cover your mortgage payments, you’ll be able to live for free. However, keep in mind that you will have to live at the property for at least 1 year.
5. You can grow your investment portfolio faster
Apart from diversifying your investment portfolio and minimizing risk, investing in multifamily homes will help you to grow your portfolio a lot faster. It’s easier and more time-efficient to purchase a 15-unit apartment building compared to buying 15 different single-family homes.
In most cases, you would require 15 separate mortgages to acquire 15 single-family homes and work with 15 different sellers. You’ll only need one loan and will work with only one seller if you buy an apartment building with 15 units.
6. More cash flow potential
One of the rules of successful real estate investing is to invest in cash flow properties. The more cash flow you have, the easier it will be for you to reinvest and grow your portfolio as well as have cash reserves for unexpected expenses. Investing in multifamily properties will typically provide you with greater monthly cash flow compared to buying single-family homes. The rent-to-price ratio is usually better with multifamily homes.
If you will be investing in the US housing market 2021, there’s only one way to make sure that you invest in multifamily homes for sale with good cash flow. That’s by conducting an investment property analysis using a reliable real estate investment tool like Mashvisor’s multifamily investment calculator.
Apart from cash flow, our calculator will help you compute other key real estate metrics such as rental income, cash on cash return, cap rate, and occupancy rate. You can do a comprehensive and accurate analysis of an investment property for sale in just a matter of minutes. This eliminates the need for an investment property analysis spreadsheet which is time-consuming and prone to error.
The Bottom Line
All sectors of the real estate industry have been adversely affected by the coronavirus pandemic in 2020. However, as we get into 2021, investing in multifamily homes seems to be the way to go. Owing to the many benefits that come with multifamily homes, you should seriously consider investing in this property type in 2021. Conduct your investment property search now with Mashvisor.