Things you should know before Investing in Multifamily Real Estate
When it comes to real estate investment, you manage your fund directly, unlike when you invest in the stock market. However, there are two kinds you need to consider – multifamily or single family. Each has its own benefits, but you might be keeping your eyes on the first choice.
A lot of people raise a question whether it is an excellent idea to start real estate with multifamily investment. Actually, the answer lies in different circumstances. Before investing in any kind, you need to learn its pros and cons or your current situation. The factors include your investment disposition, financial capabilities, and time you want to exert on this business.
The Benefits (Pros) of Multifamily Investment
- Better cash flow
The price of each unit might be lower than in single-family homes. However, considering the number of tenants in a residential property, you’ll have better gains in several months. As more people pay every month, you can generate more money in a short period.
- Better cash flow means easier financing
When there’s more cash flow, there is a lower chance of bankruptcy. For example, in a single-family property, once the household fails to pay in the agreed time, your bill or loan payments are also at risk. On the other hand, if you own a multifamily property, you have a couple of tenants to generate money every month.
- Higher chance of loan approval
Since the cash flow in a multifamily property is higher despite its million-dollar cost, there would be a greater chance that you’ll get bank loan approval. The reason is still the same – multifamily investment has a better cash flow.
- Lower chance of vacancy
When a single-family home loses its tenant, the property is 100% vacant. On the other hand, when a multifamily property loses one of its tenants, it only has a 10% vacancy (assuming 9 out of 10 tenants).
- You can occupy one of the units.
If you are a first-time investor, you might want to live in one of the units. It helps to lower your monthly payment, and you can manage the other groups as well.
The Downside (Cons) of Multifamily Investment
- A lot more expensive
In a single-home property, you can invest as little as $30,000. On the contrary, multifamily will cost more than a million. So, you need to consider your financial status first before starting your investment.
- Bigger taxes
A multifamily home is also considered a commercial property. Given that fact, you need to pay more for interest rates, and the loan term is shorter. In some cases, it includes a balloon payment. Aside from that, the down payment is much higher.
The Final Takeaways
Multifamily properties are a great investment opportunity that can provide strong cash flow, but you might want to think twice before jumping in right away. You must consider a couple of factors such as location, partners, financial position, and expertise.