Multifamily investment volume is expected to hit $148 billion in 2021, according to CBRE Research. Strong demand for rentals and low interest rates have made real estate investing more alluring. While single family properties are a popular choice for investors, multifamily properties do offer many advantages.
Here are three reasons to invest in multifamily properties.
1. Less Risk
Real estate investing is not without risks, but multifamily properties are viewed as a lower risk by banks and other lenders.
One major advantage of multifamily properties is that you have multiple units with multiple tenants. If one tenant moves out, the other tenants will make up for the loss and continue providing steady cash flow. The risk of complete vacancy is low unless you choose a very poor location.
With single-family properties, if the tenant moves out, you lose all income until you can find a new one. Depending on your location, finding a new tenant can be a lengthy and costly process.
2. Higher Cash Flow
Multifamily properties have cash flow advantages that are hard to ignore. In areas where rental demand is high, occupancy rates are high. Over time, rental rates will increase along with your monthly cash flow.
Multifamily properties have an average five year cash flow of 8.58%, according to the NCREIF Property Index. That’s impressive for any investment.
Because multifamily properties have several units in one building, investors enjoy a reliable and steady stream of income every month. A multi-unit property offers greater monthly cash flow without the need to invest in multiple separate properties across the city.
Furthermore, many multifamily properties enjoy tax incentives that further boost your bottom line.
Even without immediate cash low, multifamily properties hold value that appreciates over time. While the same can be said for any real estate investment, multifamily buildings tend to appreciate at a higher rate simply because of the property type. Appreciation is never guaranteed – there are no guarantees in real estate investing – but if you choose your location wisely, there’s no reason why your property’s value will not increase over time.
3. Easy Management
One of the biggest challenges of real estate investing is property management. Multifamily properties are generally easier to manage than their single-family counterparts. A quadplex, with four units in one building, is much easier and convenient to maintain than four single-family properties in different locations.
Multifamily properties also give investors good reason to hire a property manager. A manager can handle all of your units in one location, which allows you to optimize their services. Professional property managers can save you time and money by allowing you to focus on more important things.
Easy management is one practical reason why many investors choose multifamily properties.
Multifamily properties are a great way to get started with real estate investing. Along with steady cash flow, they also offer lower risk and easy management. Plus, you have the option of occupying one of the units to take advantage of special financing options while further improving your cash flow.