Investing in multi family real estate is an incredible way to make money. The income potential of these investment properties is unparalleled, making them a favorite among investors. But this comes with a big caveat: a high price point typically accompanies their high income potential. This fact alone scares off a lot of beginner real estate investors, but it definitely shouldn’t. From tax breaks to favorable loan terms, multi family real estate investing offers a lot more than meets the eye. Let’s explore what makes these investment properties so great.
Is Multi Family Real Estate a Good Investment?
More often than not: yes! Public taste is quickly shifting away from the traditional single family home. More and more people are gravitating towards urban centers, and this directly translates to the need for more multi family properties. Investing in multi family homes is, therefore, a great option right now.
Housing market trends have been favorable for multi family real estate for the last several years, and 2020 is expected to be no different. This is especially true for regions like the Chicago real estate market, the Detroit real estate market, and the Philadelphia real estate market, which are among the best multi family markets 2020.
Here are a few reasons why multi family real estate is a good investment:
1. Cash Flow
The biggest draw towards multi family real estate is the huge income potential. Each unit in your investment property will provide you with its own rental income stream, and your overall rewards can be massive.
Unlike single family homes, a vacancy in one of your rental units won’t spell disaster for your investment. Instead, you’ll often have the necessary positive cash flow to stay afloat while searching for new tenants. The kind of safety that comes with multi family investing is priceless for investors.
2. Tax Breaks
Federal, state, and local governments have a vested interest in increasing the number of housing units in any given area. Real estate investors are therefore in a fantastic position to attain multiple tax breaks when investing. This is especially when buying multi family real estate for sale, as it can offer investors many more tax incentives than other investment property types.
Be sure to look into your specific state and municipal tax laws if you want to buy multi family property. You may be surprised to find out that your tax obligations will be much lower than with single family homes, and your return on investment will be much better off.
3. Easier Property Management
Owning multiple single family homes can be a headache. Each rental property needs its own maintenance and management, which can become difficult if you own a handful. Multi family real estate investing groups multiple income-generating units into one location, and therefore streamlines a lot of property management functions.
If you’re managing the rental properties on your own, this can be a huge advantage with regard to workload. Otherwise, taking on the costs of property management can be a lot more feasible when your units are clustered into one property. Since much of the maintenance work will need to be conducted on the investment property as a whole, your cost per living unit goes down.
4. More Loan Options
Financial lenders typically view multi family real estate as a safe investment. This is because the risk of defaulting on a loan goes down substantially when a rental property produces multiple income streams. Multi family homes are, therefore, the best friends of both investors and financial institutions.
The favorable terms of multi family real estate loans translate into a better overall return on investment. When investing, any reduction in costs factors into your bottom line as an investor. The lower interest you can expect to pay for a multi family home can, therefore, go a long way towards increasing your income and building wealth.
5. You Can Live in Your Investment Property
Choosing to live in your multi family home can be highly advantageous if you intend to manage it yourself. You’ll have easy access to the rental property 24/7, and taking care of daily tasks will hardly every be taxing.
Moreover, there’s a trick you could use to cut back your down payment significantly. If you opt for an owner-occupied duplex or fourplex, you can qualify for an FHA loan. This is a seldom-used and very beneficial type of loan that you can start taking advantage of today. By residing in one of your units, you can qualify for a loan that requires as little as 3.5% down payment — much more favorable than the usual 20%-30% down payment. In addition to the low down payment, the right multi family rental property should be able to produce enough cash flow to cover your monthly mortgage payments. This is called house hacking and it allows you to essentially live for free! If you’re wondering how to buy a multi family property with no money, this is it.
Sounds Great. Now What?
It’s clear that multi family real estate is a good investment. So let’s get down to the most critical question: How can I find multi family homes for sale near me? Searching for rental properties can become a headache, especially since you’ll need to evaluate each property’s investment potential. Therefore, there’s a handful of indispensable tools that you need to start using to streamline the process and guarantee a good investment. To perform a holistic multi family real estate investment analysis, consider Mashvisor.
This real estate analytics platform foremost provides you with a Property Finder that’s tailored specifically to the needs of investors. You’ll have access to a multitude of multi family real estate listings, each accompanied by a variety of investment metrics. The tool will filter listings to show you only the top-performing properties- high cap rate multi family homes– in the location of your choice.
You’ll also have access to a multi family investment calculator. Upon inputting a few pieces of information, you’ll be given a detailed report about your cash flow and other valuable information. You’ll also get the numbers that matter most when evaluating the success of an investment: cap rate and cash on cash return. If you intend to buy multi family property, these numbers are crucial.
Is multi family real estate a good investment? Definitely. If you’re able to find the right property, buying multi family homes for investment can be hugely fruitful. Many investors brush off this property type, deeming it unattainable because of its high cost. But these numbers can change up when taking into account high cash flow potential, tax benefits, loan terms, and reductions in property management costs. But before you make any investment, make sure you’ve studied the right numbers to guarantee a successful real estate investment.