Pros and Cons of Investing in Multi-Family Property

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Alt-tag: A multi-family property apartment complex

Investing in real estate is usually a good idea. However, when it comes to multi-family properties, things get a bit more complicated. The stakes are significantly higher, and potential investors can face many challenges. This article will go over the pros and cons of investing in multi-family properties and the things you need to consider before becoming a landlord.

What are multi-family properties?

These are residential properties that can house more than one family. Sometimes the individual units might share certain parts of the larger property. For example, there could be a backyard every unit has access to. However, the individual housing units are separate and have their own kitchens and bathrooms.

Probably the most common type of multi-family property is apartment buildings with multiple units. An example of a smaller multi-family property would be a two-unit duplex.

Caption: Multi-family properties can range from two-unit duplexes to huge apartment complexes.
Alt-tag: A two-story building with multiple separate units

The Pros of investing in multi-family property

Low cost per unit

Although an entire housing complex can cost quite a lot of money, once you divide that amount into the individual units – you’ll realize that they are actually really affordable. The per-unit cost is going to be cheaper than buying multiple individual houses or apartments.

Access to income from rent

The real estate market is currently very strong, and we are seeing an above-average number of sales. The demand for real estate is there, and it’s evident for smaller and more affordable apartments. This means that you’ll have no problem renting the units and generating a stable cash flow.

Multi-family properties represent a great investment opportunity, even for those just beginning to build up their portfolio. Even banks realize the potential, so they are more likely to grant loans. Banks and lenders will view the property as a low-risk investment, as they expect you won’t have any cash flow problems.

Vacancy is rarely an issue

When we look at single-family properties, they are either rented or vacant. There is no in-between state, so if your only tenants leave – you’ll be left without any income. Now compare that with a multi-family complex. When most of your units are rented out, a tenant who leaves doesn’t impact your overall earning potential as much. You will have more flexibility when deciding whether you want to have someone as one of your tenants since your income doesn’t depend solely on them.

Investing in your property increases the appreciation of all the units

If you own the entire complex, you can force appreciation on every single unit by investing in the property as a whole. For example, if you do landscaping or install an outdoor pool, every apartment in your complex will be worth substantially more.

Caption: Maintaining a multi-family property is a huge responsibility and expense.
Alt-tag: An orange building with small balconies.

Cons of investing in multi-family property

It requires a commercial mortgage loan

Unfortunately, commercial mortgage loans can be a bit harder to qualify for than traditional homeowner mortgages. Additionally, regardless of the mortgage rate you may be facing, multi-family homes are definitively going to demand a considerable initial expense. You can expect a sizeable down payment, and you should also have a stash set aside for repairs and emergencies. Depending on your current finances, you may be able to achieve a better return on investment by putting your capital elsewhere.

Face competition when investing

Due to the stable income multi-family properties provide, they represent a very enticing investment opportunity for experienced investors and development companies. If you don’t have much experience with the real estate market, you could face stiff competition from large companies that can pay for the entire property in cash. However, if you have good collaboration with your agent, you should be able to find a property to invest in. Still, even when working with an agent, be ready to act quickly if you see something you like. Getting pre-approved for a loan might be a good idea.

Maintenance costs

It is the responsibility of the landlord to maintain the property and perform any needed repairs. If there is damage to the property, it will be your job to take care of it. You don’t have to come in to fix things personally, but you will need to organize and fund the repairs. We highly recommend that you regularly maintain your property and periodically perform renovations and improvements. Any issues that are left untreated could cause the entire property to depreciate in value. Understandably, this might be too much for you to handle alone. Luckily you can hire an investment and property management company to take care of any day-to-day issues.

Dealing with tenants

Managing tenants also requires a lot of time and effort. You will need to deal with individual complaints and solve issues before they escalate. Inspections can help you keep track of the state of the property. They should be conducted with every move in and move out from the individual units. Consider collaborating with a moving company to minimize any damage to your property from lifting and moving heavy furniture. Additionally, the experts from Best Movers in Florida recommend having storage units available. Some tenants will want to bring their own furniture, and you’ll need a place to temporarily store things while new people are moving in.

Caption: You may be facing a lot of competition from other real estate developers.
Alt-tag: Multi-family apartment building under construction.

In conclusion

Multi-family properties represent a low-risk investment due to the stable income they provide. Therefore, they can be a good option for anyone who wants to build up their passive income. With that said, you should carefully consider all of the pros and cons of investing in multi-family property. Purchasing real estate is always a big decision and thus should never be taken lightly.

Meta description: Thinking of purchasing real estate to gain a passive income? Here are the pros and cons of investing in multi-family property.

Images used:

https://pixabay.com/photos/real-estate-for-rent-rented-3297625/

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https://pixabay.com/photos/apartment-complex-houston-texas-2821981/

https://pixabay.com/photos/new-housing-development-houston-texas-2821969/