What are the best cash flow investments? Is it condos, single family homes, townhouses, co-ops, or multi family homes? This choice can be very confusing for real estate investors. However, the best cash flow investments 2020 are multi family real estate properties and there are several reasons why.
Before we get into the reasons why multi family homes are the best cash flow properties, let’s take a closer look at what properties fall into this category.
So, What Exactly Is a Multi Family Home?
Also referred to as a multi-dwelling unit (MDU), a multi family home is a residential property that consists of more than one unit. It can have multiple floors or be rowhouse-style and vary in size from a duplex, triplex, fourplex, or even apartments. Though each unit has a separate entrance, multi family homes usually share a main entrance.
Related: Back to Real Estate Basics: What Is Multi Family Real Estate?
Why You Should Invest in Multi Family Homes for Cash Flow
Here are some of the reasons why you should invest in multi family cash flow properties:
1. Bigger cash flow
One of the best things about large, medium, or small multi family homes is the consistent positive cash flow. They are the best cash flow investments because they have multiple units generating rental income and real estate investors can, therefore, enjoy a high cash flow. Compare this to single family properties that provide only one source of rental income.
2. Rarely completely vacant
Though tenants will always be moving and creating vacancies, it is very rare to find a multi family home that is completely vacant. This means that in spite of vacancies, property owners will still have some cash flowing in. Recent findings by statista.com showed that the average vacancy rate in multi family homes in the US is between 5.7% and 6.4%. With single family homes, however, a vacancy means that there will be no rental income and no cash flow until you find another tenant. This is yet another reason why multi family assets are the best cash flow investments.
3. Relatively easier and cheaper to manage
With multi family rental properties, everything is in one place. There is only one roof, one lawn, and maybe even one HVAC unit or water heater. Having all these things in one place could significantly lower your operating and maintenance costs. This would, in turn, increase your cash flow. This is more convenient and more affordable compared to managing multiple single family income-generating assets scattered in different locations.
4. Professional property management makes sense
Many single family home investors don’t hire a professional property manager since it wouldn’t make economic sense. However, owning a multi family home justifies having a property manager for tasks such as finding and screening renters, preparing leases, collecting rent, maintaining the property, and handling evictions. The amount of cash flow these investment properties generate allows you to turn them into passive income investments.
A Few Other Reasons Why You Should Invest in Multi Family Homes
Besides being great cash flow investments, owning a multi family home comes with a few other perks.
1. Live in one of the units
When you purchase a multi family property, you could choose to live in one of the units (house hacking). This will allow you to qualify for a low down payment loan. You can then use the cash saved on your housing costs to pay off your mortgage faster. Besides cutting down or eliminating your housing costs, living close to your tenants will be an opportunity to learn valuable property management skills.
2. Scalability
The best way to grow your real estate portfolio fast is to invest in the best cash flow investments – multi family homes. For example, purchasing a 20 unit residential building is more time-efficient and economical than acquiring 20 separate single family homes. The latter option would involve dealing with different sellers, conducting separate inspections, and applying for 20 separate loans.
3. Easier to finance
Though purchasing a multi family home requires a lot of money, it is easier to get approved for a mortgage than single family homes. The main reason for this is the fact that, as the best cash flow investments, multi family homes are more likely to generate a steady cash flow each month. Even if there are several vacancies, the lender can be assured of some payments. This means that the risk of foreclosure on a multi family rental is significantly lower compared to a single family home.
Related: How to Make Money in Real Estate with Multifamily Investment Property
Top Multi Family Markets for Buying the Best Cash Flow Investments
Looking for the best cash flow investments? Based on data from Mashvisor.com, these are some of the best places to invest in multi family property in the US housing market 2020:
#1. Manchester, NJ
- Median Property Price: $79,887
- Price to Rent Ratio: 4
- Traditional Rental Income: $1,812
- Traditional Cash on Cash Return: 14.6%
#2. Marco Island, FL
- Median Property Price: $593,673
- Price to Rent Ratio: 10
- Traditional Rental Income: $4,981
- Traditional Cash on Cash Return: 6.1%
#3. Naples, FL
- Median Property Price: $368,536
- Price to Rent Ratio: 10
- Traditional Rental Income: $3,177
- Traditional Cash on Cash Return: 6.1%
#4. Pasadena, CA
- Median Property Price: $1,513,909
- Price to Rent Ratio: 8
- Traditional Rental Income: $14,978
- Traditional Cash on Cash Return: 5.1%
#5. Hemet, CA
- Median Property Price: $410,314
- Price to Rent Ratio: 13
- Traditional Rental Income: $2,582
- Traditional Cash on Cash Return: 4.5%
Conclusion
The overall verdict remains that multi family homes are the best real estate investments for cash flow for 2020. So start investing today by deciding the number of units you want to buy and find a location where there is high demand. Mashvisor is one of the best places to find listed and off market properties, including multi family homes for sale. Before buying multi family homes, use Mashvisor’s multi family investment calculator (the best multi family deal analyzer on the market!) for rental property analysis. This tool will help you analyze property on the basis of cap rate, cash flow, occupancy rate, and cash on cash return. You will also see a breakdown of the onetime startup costs and monthly expenses.
It would also be advisable to work with an experienced local real estate agent when looking for multi family homes for sale. If you do your due diligence, multi family real estate can turn out to be the best cash flow investment in your portfolio.
Related: How to Find Multi Family Homes for Sale in 2020
