Those unable to handle the volatility of the stock market may consider real estate as an alternative. Additionally, it is a superior investment for those who prefer to actively increase their cash, as opposed to passively investing in a fund managed by someone else. One of the wonderful things about real estate investing is that multiple strategies can be employed successfully.
Donald Bren and Zhang Xin, both billionaire real estate investors, amassed their fortunes via the development of residential and commercial properties. On the other hand, Sam Zell, creator of Equity Residential, amassed his fortune by gradually acquiring a portfolio of income-generating rental properties.
Other real estate investors have gained millions of dollars through house flipping or by purchasing dilapidated houses for pennies on the dollar and reselling them for a profit.
Investing in Multi-Family Properties
Real estate investing is the favored investment method for those seeking an additional source of monthly income and a gradual but consistent increase in portfolio value. When investing in residential real estate, there are two primary categories of properties: single-family and multi-family.
Single-family properties are residential structures with a single available rental unit, whereas multi-family properties, sometimes known as apartment complexes, are residential buildings with many available rental units. While there are fewer hurdles to entry when creating a portfolio of tiny homes, investing in large residential complexes has various advantages. Here are three reasons to invest in multifamily vs single-family rental buildings.
1. More Expensive, but a Lot Easier to Finance
As an investment, the cost to acquire an apartment complex is typical, if not always, much more than the cost to acquire a single-family home. An investor could spend as little as $30,000 on a single-unit rental property, yet the price of a multi-family dwelling can soar into the millions.
Obtaining a loan for a multi-family property is more likely to be granted by a bank than a loan for a single-family house. Obtaining a loan for a multi-family property is more likely to be approved by a bank than a loan for a single-family home.
This is because multifamily real estate generates a regular monthly cash flow. This is true even if a property has a few vacancies or a few tenants who are delinquent on their rent payments. If a tenant moves out of a single-family home, for example, the property becomes completely unoccupied.
In contrast, a property with ten units and one vacancy would only be 10% empty. As a result, apartment buildings are less likely to go into default than single-family rentals. This can result in a more competitive interest rate for the property owner and a lower risk of investment for the lending institution.
2. Portfolio Development Requires Less Time
Multifamily real estate is also an excellent choice for investors seeking to amass a sizable portfolio of rental units. Acquiring a 20-unit apartment complex is significantly simpler and more time-efficient than acquiring 20 single-family residences.
With the second option, one would be required to correspond with 20 separate sellers and inspect 20 residences, each of which is located at a different address.
In extreme instances, an investor would also be required to open 20 additional loans for each property. All of this difficulty might be avoided by purchasing a single property with twenty units.
3. You’re in a Position in Which Property Management Makes Financial Sense
Some real estate investors do not love managing their own properties, so they employ a property management company to oversee the day-to-day operations of their rental properties. A property manager is often compensated as a proportion of a property’s monthly income, and their responsibilities may include tenant screening, rent collection, evictions, and property maintenance.
Due to their modest portfolios, many investors who own one or two single-family homes cannot afford to hire an external manager, as doing so would not be financially prudent. The monthly income generated by multifamily properties allows their owners to make use of property management services without drastically reducing their profit margins.
Many individuals desire to invest in rental property but are unsure of where to begin. Many investors should begin by purchasing multifamily properties. Multifamily real estate investing is a popular form of real estate investing because it is a class of assets that the majority of people can comprehend, having previously rented an apartment or bought a home.
People are able to comprehend the fundamentals: each unit must include a functional kitchen, bathroom, and a combination of bedrooms and living space. Typically, month-to-month or annual leases with straightforward documentation govern rentals.
Buying multifamily properties is significantly less complicated for the average investor than investing in office space, retail space, hotels, and other asset types. It is an excellent method to begin investing in commercial real estate.
Investing in real estate, similar to investing in stocks, enables one to achieve success through the application of a variety of distinct strategies. Owning a portfolio of rental properties is rapidly becoming one of the most popular approaches to investing in real estate. Properties that only contain one residential rental unit are typically referred to as single-family properties, whereas apartment complexes that have a number of residential rental units are typically referred to as multi-family properties.
Now you know how you can invest in real estate, read our article to learn about how you can invest in real estate while being a teen.
- Along with leading the team, Millard also works alongside different Fortune500 companies as their management Consultant/Financial Analyst, which shows his passion in helping other businesses grow.