As a passive investor, you want to be as hands-off with your investment as possible. You have the money to invest in something, but you don’t want to deal with the day-to-day operations. It’s a lot of work to have to worry about maintenance, collect rent and handle vacancies.
Passive investors are behind some of the largest investments in the world, and multifamily homes are one of their most lucrative options.
4 Reasons Passive Investors Jump at the Chance to Invest in Multifamily Homes
Investing portfolios need to be expanded to continue making money. An investor can choose to invest in a single-family home, but they will only slowly grow their portfolio. Multifamily homes are prized among passive investors because:
1. Rapid Expansion of a Portfolio
The investment is in a multifamily property, or a property that has 2 or more dwellings. Investors in these properties are rapidly growing their portfolio and increasing their potential for income in the process.
You can purchase one single-family home at a time or a 5-person dwelling where rent can be collected from five families.
Which will help you grow your investment portfolio faster? The answer is simple: multifamily properties.
2. Lower Risks
Risk management is something every investor needs to consider. Investments are never 100% risk-free, but there is such a thing as risk tolerance. When a multifamily home is purchased, the investor is lowering their risk by:
- Lowering the concern that vacancy will stop income completely. Multiple units means if one is empty, there are others still generating income.
- If you’re involved in syndication, or pooling money with multiple investors, you’re limiting your risks only to the amount invested. If someone files a $100,000 liability claim and you invested $50,000 through real estate syndication, you’re only liable for the $50,000.
In terms of investing, multifamily homes offer more security than other forms of real estate investment.
3. Consistent Cashflow
Cashflow is the backbone of every portfolio. When a portfolio has income-generating investments, such as collecting rent from tenants, the investor is able to continue growing their investments.
Since multiple tenants are involved, the investor can consistently grow their cashflow and hopefully, use this money for other investments.
Perhaps you use the rental income to invest in additional properties. This is a smart form of investing because you’ll fuel future investments through your past investments.
4. Less Time Consuming
Passive investors, whether accredited or non-accredited, are able to spend less time on rental properties. Since you’re a “passive” entity, you’ll be putting the responsibility of maintenance, collecting rent and ensuring that units remain occupied in the hands of the other investors.
You can continue your day-to-day life and not have to spend time on anything but collecting your check in the mail.
In real estate syndication, an accredited investor has $1 million in net worth, excluding their primary residence. Non-accredited investors do not meet this requirement and can only invest up to 10% of their annual income in a syndication.
The rules, found in the Securities Act of 1933, protect investors, too.
If you’re considering becoming a passive investor and have the opportunity to invest in a multifamily property, the benefits above apply to you. Passive investments require less time and commitment while offering the potential for massive returns.