Two types of rental properties dominate the residential real estate landscape. The first type, which you’ve probably heard time and time again, is single family homes. The second and less discussed type is multi family properties.
Multi family real estate investing is often painted as inferior to single family investing. This isn’t necessarily true. Depending on your goals, multi family real estate investing could be your ticket to earning high rental income.
Related: Single Family Homes vs. Multi Family Homes: Differences and Similarities
Here is a list of the major benefits of multi family real estate investing over single family investing:
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More Units, Less Expensive
Multi family homes are not cheap. In terms of affordable listing prices, single family homes take the cake. However, if we’re discussing price per unit, multi family homes win.
Multi family homes, like apartment complexes, contain many individual units. Single family homes, on the other hand, are individual units. Essentially, with multi family real estate investing, you are getting more for less. Having multiple units gives multi family properties an advantage, as you will notice throughout this blog post.
So, if you are interested in expanding your real estate investment portfolio quickly and efficiently, consider multi family real estate investing. After all, instead of purchasing one unit, you can effectively purchase 15 or 20 units in the same purchase!
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Simpler Financing
Multi family homes might be more expensive than single family ones, but they tend to be easier to finance. Why is that the case? The answer to that real estate question is less competition and secure cash flow, but we’ll get to these factors later.
Generally, qualifying for a mortgage for a multi family property is not too difficult. This is true for most multi family real estate properties, even with their more expensive prices than single family rentals. What also becomes easier to acquire is insurance for the investment property. Again, this is possible because multi family properties have several units. Instead of requiring insurance for every individual unit, all you will need is one single insurance for the complex in its entirety.
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Less Competition
One of the reasons financing is relatively simple with multi family properties is due to less competition. With single family homes, real estate investors are not the only ones interested in purchasing a property. Instead, the competitive buyer’s market for single family homes is flooded with home buyers. As a result, direct lenders have more options to choose from. On the flip side, with multi family real estate investing, home buyers are no threat to purchase a property. Securing a loan becomes much more probable for real estate investors.
Related: How Your Investment Property Can Compete in the Rental Market
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Secure Cash Flow
What else makes qualifying for a loan for a multi family home easy? The fact that is has secure cash flow.
Cash flow, as you know, is the essence of any sort of rental income for an investment property. By taking part in multi family real estate investing, your cash flow is more likely to be secure. What do we mean by secure cash flow? Essentially, once you’ve established positive cash flow, it becomes difficult to lose.
This is due to the occupancy and vacancy rates of multi family homes. Let’s say an apartment complex has 16 units. If two units are vacant, there is an overall vacancy of 12.5%. This is definitely not what any real estate investor would want, but it is not all too bad. The investment property’s total rental income will certainly decrease, but its cash flow will not take a very hard hit. With a single family home, however, one vacancy equals a 100% vacancy, which means no rental income. Once again, having multiple units in one property serves as an advantage.
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Makes Property Management More Worthwhile
To have professional property management or not is an issue that dances in the mind of many real estate investors. There are obvious positives and negatives to using professional property management. As a pro, company management will take care of all the management duties required for rental properties. This ranges from everything as simple as collecting rent to as complex as evicting a tenant. The obvious downside to all of this, however, is the cost.
Related: Professional Property Management: When is It Worth the Money?
By participating in multi family real estate investing, the pros of professional property management are emphasized and its cons are eliminated. In terms of the pros, it is in your best interest, financially and mentally, to hire property management. Professional property management receives a stigma for being costly. With multi family properties, however, it will actually help you make more money. If you were to manage multiple units on your own, mistakes become more possible. The increased time on the units might make you lose money from different avenues as well. You won’t just lose money, you could also lose your marbles with all the management pressure on your shoulders. Also, since multi family homes can make a lot of money when performing properly, the added cost for property management will seem insignificant.
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Easier to Increase Value
Increasing a property’s value typically requires improving the income property. With multi family real estate investing, this is relatively easy. The individual units of multi family properties are cheaper than SFRs. Therefore, adding new features to the unit, like new doors, amenities, and renovations, can easily boost the property’s appreciation. Since single family homes are more expensive per unit, it would require more money to uptick their value.
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Demand and Affordability
Lastly, the demand for multi family real estate investing makes it an attractive investing option. Today, many Americans live in apartment complexes. This is especially true in cities, which tend to have apartments as the main form of residential properties.
Multi family properties’ demand also ties in with its affordability. While these real estate properties can be true cash cows, they are also affordable for the tenants living in them. Everybody wins in this case, tenants have a reasonably priced place to live, and real estate investors can make a great sum of money from the rental property.
The debate on multi family homes vs. single family homes might go on until the end of time. Both tackle residential real estate in some shared and unique ways. Although single family homes are seen as the big brother of multi family homes, just remember that some people prefer to play as Luigi over Mario.
For more on multi family real estate investing, start your property search with Mashvisor!