Upon entering the world of real estate investing, you’ll come to realize there are many options for you, as a real estate investor, to choose from. To join the class of successful property investors, you have to always make smart investment decisions. This is why it’s essential to understand the different investment property types, investment strategies, and property financing methods. This will make you able to determine the best real estate deals. One type of investment properties that is popular in real estate investing is the multi family investment property.
Multi family homes are investment properties that consist of multiple residential units and house multiple tenants. These range from duplexes to entire apartment buildings! In this article, we’re focusing on why buying a multi family investment property is a smart investment decision and providing you with a list of the best places for property investors to find them – based on data from Mashvisor. So, if you’re interested in buying a multi family investment property, keep reading!
Why You Should Buy a Multi Family Investment Property
A Multi Family Investment Property Yields High Return on Investment (ROI)
It goes without saying that the main motivation for every real estate investor is to make money from investment properties. In real estate investing, property investors make money from cash flow (in the form of monthly rent) and appreciation. A real estate investor owning a multi family investment property has a higher chance of generating a positive cash flow. Why so? Simply because there are more residential units in multi family homes, meaning more rental income. Moreover, this positive cash flow is essentially an indicator of a high return on investment and successful real estate investing.
In addition, when a real estate investor buys a multi family investment property and holds it for a long time, the value of the investment property will increase with time! This is what we call appreciation in real estate investing. Multi family homes appreciate at a lower rate than single family homes. However, property investors can actually force appreciation on multi family homes! Adding amenities such as a laundry room or a parking space, or providing extra services are examples of how a real estate investor can force appreciation on his/her multi family investment property. Due to appreciation, property investors can sell their investment properties for a higher price than the initial investment, and thus, get a high return on investment.
A Multi Family Investment Property is Easier to Finance
It might sound too good to be true, but even though multi family homes are expensive to purchase, they are actually easier to finance than single family homes. Property investors have more investment property financing options with less down payments. Thanks to positive cash flow, banks and loan lenders are more motivated to give a mortgage to a real estate investor buying a multi family investment property as they guarantee that the rental income will cover the loan payments.
In addition to that, it’s actually easier (and more convenient) to obtain one loan that covers a number of residential units than taking multiple loans to cover multiple investment properties, each one with only one residential unit. Qualifying for a loan for a multi family investment property is not too difficult as well. In addition, acquiring insurance also becomes easier. Once more, instead of obtaining insurance for every individual unit, property investors owning a multi family investment property only need to obtain a single insurance plan for the whole apartment building!
Looking to buy your first multi family investment property? Click here to start looking for and analyzing the best investment properties in any city and neighborhood of your choice across the US real estate market.
A Multi Family Investment Property has Fewer Risks
Multi family homes have fewer risks with regards to vacancy rate and negative cash flow. Vacancy is a risk that haunts every real estate investor, but not those with a multi family investment property! Yes, there is still a chance of some vacancy, however, it’s very unlikely for multi family homes to get 100% vacancy rate. This is especially true when investing in a real estate market in which demand is high and people prefer renting instead of buying a house, thus there’ll always be potential tenants for a multi family investment property.
Furthermore, this reduces the risk of generating negative cash flow! For example, say you’re investing in a multi family investment property with 16 residential units, and 3 of them are vacant. Of course, no real estate investor would want this, but it’s not something to worry about – you’ll still be able to make money and cash flow from the rent collected from the units that are occupied. On the contrary, property investors with single family homes will have a 100% vacancy if they don’t find a tenant and will start losing instead of making money from their investment properties.
Where to Buy a Multi Family Investment Property
Now that we’ve covered why buying a multi family investment property is a smart investment decision, let’s dive into the second part of this article – the best places to buy multi family homes! But first, let’s explain what makes a certain real estate market more suitable than others for owning a multi family investment property.
The most important factor is population. No matter what type of investment property you own, it will not be profitable if you don’t find tenants to rent the investment property. Real estate markets with a large population are the best places to buy a multi family investment property because demand is high in these markets – which ultimately pushes the rental income up. Besides, you don’t want to invest in an area with a small pool of tenants – this will increase vacancy risks.
Based on this, we conclude that the best real estate markets to buy a multi family investment property are those with a growing population, high demand, high rental income, and low vacancy rates. So, here’s a list of markets that have those features, in addition to important real estate numbers computed by Mashvisor’s rental property calculator.
Los Angeles Real Estate Market
- Median Property Price: $800,140
- Traditional Rental Income: $3,000
- Airbnb Rental Income: $1,689
- Traditional Cash on Cash Return: 1.49%
- Airbnb Cash on Cash Return: 0.85%
- Traditional Cap Rate: 1.49%
- Airbnb Cap Rate: 0.85%
San Diego Real Estate Market
- Median Property Price: $728,128
- Traditional Rental Income: $2,743
- Airbnb Rental Income: $1,796
- Traditional Cash on Cash Return: 1.65%
- Airbnb Cash on Cash Return: 1.12%
- Traditional Cap Rate: 1.65%
- Airbnb Cap Rate: 1.12%
Las Vegas Real Estate Market
- Median Property Price: $288,172
- Traditional Rental Income: $1,307
- Airbnb Rental Income: $1,461
- Traditional Cash on Cash Return: 2.16%
- Airbnb Cash on Cash Return: 3.21%
- Traditional Cap Rate: 2.16%
- Airbnb Cap Rate: 3.21%
Phoenix Real Estate Market
- Median Property Price: $329,081
- Traditional Rental Income: $1,359
- Airbnb Rental Income: $1,431
- Traditional Cash on Cash Return: 1.39%
- Airbnb Cash on Cash Return: 1.97%
- Traditional Cap Rate: 1.39%
- Airbnb Cap Rate: 1.97%
Miami Real Estate Market
- Median Property Price: $400,708
- Traditional Rental Income: $2,363
- Airbnb Rental Income: $2,774
- Traditional Cash on Cash Return: 1.82%
- Airbnb Cash on Cash Return: 3.11%
- Traditional Cap Rate: 1.82%
- Airbnb Cap Rate: 3.11%
Click here to start your search for a multi family investment property in any of these real estate markets!
Find the Best Multi Family Investment Property with Mashvisor!
Mashvisor is an online platform that provides beginner and experienced property investors with the best real estate investing tools and data analysis to make smart investment decisions for a successful real estate investing career. To find the best investment properties in any state, city, and neighborhood across the US real estate market, Mashvisor provides:
- Investment Property Finder: A powerful search tool that is heavily customizable, allowing you to search for investment properties based on specific criteria, such as finding properties of a certain type, in a certain neighborhood, or with a certain Cap Rate.
- Investment Property Calculator: This versatile and customizable tool allows you to calculate the different values related to an investment property. The main values that you will be able to calculate are Cash on Cash Return, Cap Rate, Cash Flow, and Airbnb Occupancy Rate.
- Heat Map Function: The heat map function for the property finder tool allows you to find investment properties much faster using visual cues. For example, you can set the heat map to indicate the areas with the highest Cash on Cash Return, and you will immediately be able to tell which areas have the highest potential for high Cash on Cash Return properties.
Sign up with Mashvisor to get full access to these real estate investing tools and more to help you find the best multi family investment property! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.