If you’ve been thinking about diversifying your investment portfolio, buying multi family homes for investment might be the right move for you. They are one of the best real estate investments for a number of reasons. But before we can continue, we should first clarify, “what is multi family real estate?”
What Is Multi Family Real Estate?
No matter the level of experience you have, brushing up on some real estate basics won’t hurt. If you’ve been an active player in the real estate investing game for a while now, investing in multi family real estate might not be a foreign concept to you. However, real investing for beginners can be a bit confusing because of how vast the industry is; let’s make things easier and cover a big market- multi family real estate.
So what is multi family real estate? Basically, a multi family property is a residential building with more than one housing unit. Multi family real estate can accommodate multiple tenants, each having their own rental unit with its own kitchen, living room, bedroom, and bathroom. A multi family home is also known as a multi-dwelling unit (MDU) and these multiple separate units can also be held in one or several buildings in the same complex.
Multi Family Homes vs Single Family Homes
When it comes to residential housing, the main types of real estate investments are single family homes and multi family homes. You already know multi family real estate houses multiple tenants at the same time, so one can only assume that single family refers to a building which only houses one tenant at a time. And that’s the root reason why becoming a multi family real estate investor is such a great decision; the opportunity of having multiple income streams generating from the same investment property is amazing and can be extremely profitable.
Now that you have the basic answer to “what is multi family real estate?” let’s get into the specifics regarding this type of rental property.
Types of Multi Family Real Estate Properties
Before you start searching for multi family homes for sale, there’s still more to know. If you recall, when answering “what is multi family real estate?”, we said that they are buildings with multiple housing units. Now there are different levels of multi family real estate investing depending on how many rental units each building holds. Here are the basic types of properties:
- Duplex: A duplex investment is the simplest multi family real estate investment. This type of property is one building which is divided into two separate “houses” that are typically side by side. Even though it’s the same building, each house has its own entrance and there are no common areas.
- Triplex and Fourplex: Like duplexes, a triplex and fourplex are buildings with three and four housing units, respectively.
- Townhouse: Any number of houses attached at the sides with separate private entrances. They can also be on top of each other (typically two units vertically), usually with their own private exterior entrance.
- Condo and Apartment: These are the more common types of properties that come to mind when people think of multi family real estate. A condo can be an individually owned unit in a multi family housing complex. Whereas, apartment buildings are wholly owned by one owner. Although their purpose is to house tenants, apartment buildings are considered commercial real estate investments.
Know which type of multi family investment properties for sale you want to start looking for? Then you’re ready to use our Property Finder Tool to find the best one right now.
Other Things to Consider Before Investing in Multi Family Homes
When multi family real estate is in the picture, there are a couple of other factors you need to keep in mind. It is one of the best types of rental property to quickly build wealth, but you need to perfect your strategy. Conducting a thorough multi family real estate investment analysis is easy with Mashvisor, but here are a couple of things you should generally keep in mind when assessing potential multi family real estate investments.
Short for capitalization rate, this is a measure of potential return on investment. To calculate the cap rate, simply divide the net operating income of the property (net profits after expenses) by the price/value of the property. It is a very basic calculation, but don’t be fooled. Finding the cap rate could end up being quite difficult if you don’t have all the right information. To get a more accurate cap rate and understand what this number actually means for your specific investment property, use Mashvisor’s calculator.
Our multi family investment calculator will give you accurate ROI measures. To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
The cap rate of the location also matters. For more on this, read: What Are the Best Multifamily Markets 2019 with High Cap Rate?
Financing a multi family property is actually sometimes easier than financing a single family home. Yes, multi family real estate is more expensive, but getting approved for a bank loan is more likely in this case. This is because banks view multi family real estate investments as less risky than a single family home. The cash flow of the investment doesn’t depend on only one tenant, and a vacancy won’t quickly trigger the need for foreclosure.
Investing in a rental property doesn’t necessarily mean you need to become a landlord. For real estate investors who don’t want to deal with the day to day operations, hiring a professional property manager to take care of the rental property and its tenants is an option. The problem is, sometimes the cost of that simply isn’t worth it. Thankfully, with multi family real estate, that usually isn’t the case.
The strong cash flow these properties generate give you enough leeway to afford a property manager. Their tasks can include finding and screening tenants, collecting rent payments, handling evictions and maintaining the property. If you want to figure out the various expenses involved with real estate investments, you can use Mashvisor’s investment calculator.
Now That You Know What Multi Family Real Estate Is…
Are you ready to start looking for one? You can start your multi family property search here.