Multi-family home investing, whether it’s in a duplex or a large-scale apartment building, can provide steady cash flow while helping you expand your investment portfolio. With more than 35% of U.S. households renting, now is a great time to consider a multi-family home investment.
Multi-family home investing offers many advantages, but like with any other investment, there are drawbacks that need to be considered.
The Benefits of Multi Family Home Investing
Reliable Cash Flow
Having reliable cash flow is one major advantage of multi-family properties. Instead of having one tenant in a single-family property, you have multiple units with multiple tenants. A building with four units can provide four times the income of a single-family rental property.
If one tenant vacates a unit, the remaining tenants will continue to provide steady income while you find a new tenant for the vacant unit.
Simplified Loan and Insurance
Investing in multiple single-family properties means having to deal with multiple loans and insurance policies.
A multi-family property has a single loan and single insurance policy, which simplifies management. Insurance costs are higher overall for multi-family properties, but each unit will have the same level of coverage and you won’t have to deal with several policies.
Multi-family properties are naturally less risky because you have multiple separate tenants living in a single building. The chance of reaching zero occupancy is low unless you choose an undesirable location.
In areas where rental demand is high, multi-family property owners rarely have to worry about vacancy rates.
For this reason, lenders also view multi-family properties are lower risk, which makes it easier to secure financing.
Multi-family properties also offer tax benefits. Mortgage interest can be deducted, and multi-family properties can also be depreciated over a period of 27.5 years – even if the property’s value increases.
Depreciation can help offset rental income, allowing investors to reduce their tax burdens.
The Drawbacks of Multi Family Home Investing
The higher cost of purchasing a multi-family property is one of the biggest drawbacks of this investment type.
Compared to single-family properties, multi-family investments will almost always be more costly. However, in some markets, the cost can be significantly higher for multi-family properties. In major cities like New York City, Portland, and San Diego, multi-family properties can cost millions of dollars, even small ones.
Management is More Complicated
In some respects, multi-family properties are easier to manage because all of the units are located in one central building. If you already own single-family properties, moving to a multi-family investment may simplify management for you.
However, if you’re new to real estate investing or own one single-family property, you will find that multi-family properties complicate the management process. Instead of dealing with a single unit, you now have to worry about maintaining several units and dealing with several tenants.
Multi-family home investing has many advantages, but these few drawbacks need to be carefully considered before committing to purchasing a property. These drawbacks are particularly seen when someone purchases and self-manages a large multi-family property.
To overcome these challenges, it is best to work with a team of professionals where each team member has their unique specialty and so the challenges and problems of managing a multi-family property are easily overcome so that investors can enjoy the benefits with peace of mind.