You are looking for a quality investment that will be able to provide you with a dependable source of income as soon as possible. Real estate has long been known to be a good choice, but you might be wondering about multi-family properties. Are multi-family properties a good investment or not? Let’s look at some of the biggest benefits that these types of properties can offer, along with any drawbacks that there might be to help answer this question.
Easier Property Management
If you were to buy four single-family homes that are scattered across a city, you would have more work cut out for you than if you have a single building that has four units in it. All of the units and tenants will be in the same area, which means property management tends to be easier and cheaper, even if you are hiring someone else to take care of it. When you start to expand this idea to include even more units, you can see how all of the apartments in a single building will end up being far easier for you.
Grow a Portfolio Quickly
Another one of the benefits that make these types of properties a good investment is the fact that they help you increase the size of your portfolio faster. Getting a building with 10 or 20 units in it tends to be much faster and easier than going out and investing in 10 or 20 single-family homes. Imagine having to go through 20 different sellers and 20 separate closings and getting 20 different loans. Having a single building that has all of those units can be a much better solution.
A Great Source of Income
When you have a multi-family building, you will be receiving rent money from all of the units. As long as you have taken the time to find a quality investment, you will be able to make enough money to pay back the loan and have actual income each month. Once the building is paid down or paid off, you will see that the income keeps on increasing. When the rent is raised on one of the units, it will typically be raised on all of the units. This means that the income can continue to increase, just like with a single-family property. However, the increase is across multiple properties, which means more of a profit for the investor.
More Cash Flow Options
When most people think about the money that they will be generating from a multi-family dwelling, they only think about the rent. They rarely consider some of the other ways that they could be making some additional money on the property. Think about some of the different types of amenities that you could add, such as a coin-operated laundry room. While there will be the initial cost of the machines, they will start to pay for themselves in a relatively short period as your tenants use the washers and dryers. Having vending machines on-site can be another good way to add some extra money.
Not only will you find other cash flow options like these, but you will find that your tenants will appreciate these types of extras. After all, having a washing machine and dryer on-site is far more convenient than going out and doing laundry at a laundromat.
Properties Hold Their Value
You will also find that quite often, multi-family buildings tend to hold their value. This does require care and upkeep, of course. However, when the property is taken care of well and when the rents are priced reasonably for the area and the quality of the building, it does mean that the property can continue to be valuable well into the future. People are always going to need to have a place to live. A nice looking property will continue to attract tenants. You can make money now and for the long haul, as long as you keep the property in shape and you have chosen a good location.
Risk Is Spread Over More Units
Because you have more units, it also means that the risk is spread out amongst all of them. If there is one unit that is empty in a building that features 20 units, it will be much less of a problem than if your only single-family investment property is vacant. If someone is late on the rent in the multi-family dwelling, the others are still likely to pay on time. If someone does not have the rent in a single-family property, it can take a worse financial toll on you. Ultimately, the larger unit will help to spread the risks and issues that could arise.
Are There Any Drawbacks?
The benefits to these types of investments are many, as is evident above. However, this does not mean that they are always going to be the best choice for all investors, as there tends to be one perceived problem with these types of investments. They are more expensive than a single-family property, and this means that some investors will have a more difficult time coming up with the money they need for the investment.
Along the same lines, there is the cost of upkeep for a large property. However, if you are charging enough in rent and you are keeping cash reserves, you should not run into a problem.
However, there are many ways to get the investment money you need today, so even this drawback is becoming less of a barrier for investors than it once was.
So, are multi-family homes a good investment for you? It will often depend on just what you want to do as an investor. As you can see from the benefits mentioned above, these types of buildings can be an excellent option for those who can buy them. It could be the perfect next step for you as an investor.
Donald La, licensed commercial property broker, has many years of experience in dealing with acquiring multi-family homes for his clients mainly in the San Gabriel Valley and Los Angeles Counties. Contact Donald with any questions regarding acquiring commercial real estate as investments.
About the author
