Getting commercial properties that’ll guarantee a steady ROI is one of the most important goals of any commercial real estate investor. Suppose you’re in search of such properties, multi-family real estate is your best bet.
However, investing in multi-family housing can be complicated for a first-time homebuyer. As such, there are important things you need to know if you’re looking to invest in multi-family homes as a first-time investor.
This article explores some of the basic things to know before buying a multi-family property. Read to the end!
A multi-family property is any residential building with more than one house unit. It usually has separate kitchens and bathrooms for each unit.
Multi-family apartments typically come in multiple-story buildings and have a range of between two to hundreds of family units. Bear in mind that ‘family’ in this context may mean couples with or without children, groups of roommates, etcetera.
The benefits of multi-family investing are vast, resulting in a significant competition amongst real estate investors to acquire them. This competition can make it more challenging for first-time investors.
However, as a novice, you can still get your desired properties with the help of dedicated real estate brokers like Holdfolio. They’re a multi-family real estate investment company that helps beginners begin their journey into real estate through passive investment in multifamily properties.
Some of the benefits of multi-family real estate investing for beginners include but are not limited to:
The promise of a steady cash flow from multi-family properties is perhaps the biggest benefit of investing in them. While you may cease to receive monthly cash flow in months where your property is vacant in a single unit property, it doesn’t apply to a multi-family property.
With more than one tenant in your property, the multi-family property has an almost guaranteed steady cash flow because all the units on your property are unlikely to be vacant.
As a first-time commercial real estate investor, acquiring a multi-family property can propel you from having few or no property to your name to owning a multiple unit property.
To buy multi-family properties, only one loan account is required even if the property has over a hundred units. However, you’d need to have a separate loan account for each single unit property you’ll want to get.
Also, you can get a per-unit cost discount since all your units are located in the same place. Your properties also require minimal effort to manage efficiently when they’re in the same location as when you have single-unit properties scattered in several locations.
Another benefit of investing in multi-family property is that the chances of mortgage lenders approving your request for a multi-family home are higher than a single-unit property.
The higher chances can be attributed to the fact that multi-family properties have more tendency to consistently generate cash flow. It’ll be unlikely for every unit in a multi-family property to be vacant. As such, the means of generating mortgage funds are always there.
Buying a multi-family property gives you the option of moving into the property while also having units that you can rent out.
The multi-family property investment can solve your own housing issue and also make you a landlord at the same time. Moving into your multi-family home makes it, even more, easier to properly manage your investment as you’re in the same location as your investment and any issue that comes up can be addressed by you on short notice.
As much as the benefits of investing in a multi-family property are vast and enticing, there are some notable drawbacks to it also. Highlighted below are some of the drawbacks.
This may not come as a surprise due to the vast benefits that a multi-family property attracts. Experienced investors tend to always go for a multi-family home creating room for competition. The competition may raise the prices of these multi-family properties above the average market prices.
Some investors don’t need to go through the process of acquiring a mortgage loan because they already have the funds to finance the investment. This factor makes it difficult for first-time or novice investors to break into the market.
While investing in a multi-family property is a smart and profitable investment, it comes with a higher initial cost than a single-unit property.
For instance, the down payment for multi-family homes starts from 20%. Seeing as the entire cost of such property may run into millions of dollars in popular locations, a 20% downpayment is usually huge.
While banks and other lenders may be quick to approve your loan with good interest rates, you’ll have to come up with the funds for the initial down payment.
Acquiring a multi-family property comes with the responsibility of higher property management. Managing a multi-family property requires more time and responsibility.
However, if you have other obligations and not much time to spend managing the property, you can always opt for a property manager to help you handle the property. Property managers usually handle the day-to-day running of investment properties including screening and accepting new tenants, building maintenance of the building, etcetera.
Assuming you chose to move into your multi-family home with your tenants, there’s some certain privacy you may not get as someone living in a single-unit apartment. If you’re big on privacy, you may find it challenging to stay in your multi-family property.
Staying in the same property with your tenant can also make them want to reach out to you anytime there’s a minor issue that may need fixing in the apartment.
Acquiring a multi-family property as a first-time investor can be challenging. However, you need not renege on your ambition of getting a multi-family investment property.
You may be wondering “where is the best place to invest in multi-family real estate?”. Various sites like Holdfolio can help you with getting multi-family properties in good locations even as a passive investor. Also, they can show you the cheapest place to buy multi-family properties.