Real estate investing often revolves around either commercial properties or single-family housing. However, there’s a larger, often more rewarding category known as multifamily investments. This class of investing encompasses all types of properties that you rent to multiple residential tenant groups, including apartment buildings, apartment complexes, condos, duplexes, townhouses, mixed-use buildings, and more.
Any of these buildings can be a huge investment, but one worth doing. There are pros and cons to every investment you might make, and it’s important to know the risks. But this article will simply focus on the positives.
Here are some of the key reasons that investors love multifamily housing.
1. The potential revenue is high and stable.
Money talks with multifamily properties. Although the initial investment is greater with larger properties like this, the monthly income is much higher to compensate for it. If you do your research and advertise well, your revenue potential will be considerably higher than a single-family unit.
Besides that, unlike fix-and-flips, wholesaling, or other risky ventures, you have a predictable source of income every month. You can plan renovations, repairs, and general maintenance, accordingly, ensuring that you pay yourself alongside what needs to be done.
Do the math on a property, and you’ll easily see the profit potential. You can also check out this comprehensive guide to the profitability of owning multifamily property.
2. It’s often easier to fill units.
Single-family housing presents a significant downside to filling units because people don’t always know about it. It’s easy to recognize a quadruplex or townhouse as having potential availability for individuals looking for a new rental, but people typically assume houses are for sale, not for rent.
Tenants will come to you, making it easier to keep your units filled and your profits high. Smart landlords also keep applications on file so that when vacancies come up, they have a list of potential candidates to fill them right away.
3. There are generous tax breaks for this investment type.
Tax benefits are largely the same for any income property. You can deduct mortgage interest, related expenses, and depreciation. But because of the size of the investment, the tax breaks are larger.
Depreciation occurs over 27.5 years for any property. That number is significantly larger for a more expensive property, shielding your yearly expenses from this huge hit.
Additionally, taxes for multifamily homes are typically easier to manage. You don’t have to separate tax bills and returns for multiple single-family units—you just have one for the entire building.
4. The cost per unit is much lower compared to single-family units.
Savvy landlords will identify the price per unit when handling multiple property investments. Those who have many single-family units will find that it’s much more expensive to maintain each individual property than it would be to maintain a single building. That’s money that comes out of your pocket.
When added together, the costs for maintenance, landscaping, property taxes, insurance, and other related expenses will be significantly greater than a single multifamily unit. This is due to many factors, including travel time for your maintenance and landscaping team, increases in property taxes for certain neighborhoods, differences in hazards calculated by your insurance company, and so on.
5. Multifamily buildings appreciate faster.
Many factors contribute to the overall appreciation of a residential unit, but you’ll find it’s easier to accelerate the appreciation of a multifamily building vs. a single-family home. With the latter, you’d need to do expensive improvements to the property such as windows, siding, roof, exterior paint, bedroom or bathroom additions, etc.
With multifamily properties, these updates can help, but they’re not always necessary. In many cases, you can raise the value of a property simply by increasing the net operating income (NOI) each year. Depending on the cap rate in the area, you could raise your property income 10 times the amount you increased your NOI.
While the large investment of multifamily properties isn’t for everyone, it boasts major advantages for those who take the time to see them through. When you compare the ROI between a single-family home and a multifamily building for your next investment, you may find it will be worthwhile to take the leap and make a larger investment.