Multifamily investing is a great way to diversify your portfolio and increase passive income, here is how to buy a multifamily property, and the benefits of doing so.
People are always looking to invest in rental property, but those who have never taken the leap often don’t know where to start. After all, there are so many options, such as single-family homes, multifamily properties, commercial office space, retail space, hotels, and more.
Where do you start?
Of all the options, multifamily properties tend to be one of the easiest, most straightforward methods of investing in rental property.
What is a Multifamily Property?
In short, a multifamily property is one that has more than one unit.
When referring to multifamily properties, it is not uncommon to think of massive high rises or large apartment complexes. After all, these are places where you have many families residing within one building. But multifamily homes can come in all sizes – including a two-family duplex. Tri-plexes and four-plexes are also multifamily properties, housing three and four families.
Smaller multifamily properties are still considered residential property. But, when there are five or more units, it is often referred to as a commercial real estate.
5 Pros of Multifamily Investing
Some investors believe that multifamily properties are the way to go. You buy one building and have multiple tenants – it must be a great investment, right? As long as you are making a well-strategized purchase, you will find that there are many benefits to multifamily investing. These include:
1. Create passive income.
As with every rental investment, passive income becomes a great way to bring in money without having to give it much time and attention. This is even more true when you hire a property manager to handle your properties.
2. Increase cash flow.
When you have multiple properties, you have multiple incomes coming in on one property and it can generate an increase in cash flow for you. When you are ready, you can even take this increase in cash flow and invest it in another property.
3. It’s a low-risk investment.
If you have money that you need to invest, but you want to do so safely, then the multifamily investing is a great option. People will always need a place to live.
Even if they are forced to sell their home and move into something smaller, they need a roof over their heads. So no matter how good or bad the economy gets, there is always a good chance of demand.
4. There are many tax advantages.
One thing that sets multifamily rental properties aside from others is that they come with many tax advantages that others don’t. This primarily comes down to depreciation offsets.
5. You only need one loan.
When you buy multiple properties, you will have multiple different loans which can be tedious in tracking and managing over time. However, with multifamily investing, you will only have to worry about one loan on the property of multiple units. When you have a lot on your plate, this can simplify things a bit.
How to Buy a Multifamily Property
Once you get your mind set on purchasing a multifamily rental property, you are going to need to know how to do it. You could move in the traditional sense and take out a mortgage. This, of course, means going through various applications and providing the right documentation to get approved. If you are intending to reside in one of the units, you may even qualify for an FHA or VA loan. Be sure to check with your bank or lender to determine your options.
Private money mortgages are another option. If you know a financial backer who isn’t too big into the details of investing but is willing to give you the money to invest, this is another option. Sometimes money may even come from friends or family members who want to act as silent partners in your multifamily investing adventures.
If your investment funds are too high, you can even consider buying cheaper properties using the BRRRR method and rehab them a bit. You may be surprised at how much money you could save — if you have the time and skill to renovate.
Multifamily property investors often have a lot of different strategies they use for determining the best properties or making the best use of funds. Expand your network and learn from those who are already doing it.
Utilize a Property Manager for your Multifamily Properties
While there are many reasons to begin multifamily investing, there is one downfall that we have not discussed – and that’s how difficult they are to manage. For investors who aren’t experts at managing more than a rental property or two, having a multifamily unit with multiple tenants – and all the issues that may arise – can be overwhelming and frustrating.
This is where multifamily property management comes in. You can’t let the trials of handling multiple tenants deter you from making a sound investment in a piece of multifamily real estate. Instead, you need to make wise decisions to invest and then delegate the work.
Experienced property managers are able to handle your multifamily property with ease, freeing you up immensely. And hiring one just makes the most financial sense.
A property manager will handle:
- Marketing your property
- Tenant screening
- Showing the property
- Lease signings
- Maintenance and repair
- Walkthroughs and inspections
- Rent collection and distribution
And so much more. They understand everything that it takes to successfully manage rental properties – and that’s what they do. At Real Property Management Evolve – the best property management team in Phoenix – we know handling a multifamily property can be overwhelming for the most seasoned investors. That’s why we manage your property so that you don’t have to.
Buying and renting a multifamily property is a great choice to make as an investor – especially because the benefits of doing so are plentiful. But once you do, just know that managing multiple units is much more difficult than you may expect. Reach out to an experienced property manager – such as Real Property Management Evolve – to handle the property for you. It pays to have the experts on your side.