Could Multifamily Real Estate Be a Good Investment for You?
The first thing that people tend to think of when you mention investing is the stock market. They want to know what stock you’re going to buy and whether you have any apprehension about losing your money on such risky endeavors.
Those who are more investment savvy understand that there are other safer ways of investing that can yield a steady return, ways like real estate investing. They’re quick to tell you about someone they know who bought a house, renovated it, and either flipped it or rented it out for a steady stream of passive income. However, in discussions about investing, how often does the topic of multifamily real estate investing get raised?
One of the primary reasons researchers have found is that the term “multifamily” tends to evoke images of a massive apartment complex with hundreds of units. Limited in funds, the automatic response to this idea is, “I can’t access enough money to buy something like that! Something that big would be a nightmare to run!”
However, consider this: multi, which is short for “multiple,” simply means “more than one.” When you consider that multifamily housing represents anything more than one unit that houses multiple families or groups, the idea of investing in this type of real estate seems a lot more attainable, right?
Yes, acquiring multifamily real estate may require a larger upfront investment in terms of down payment. Yes, if you see a good deal on a multifamily unit, you’ll likely have to compete with a lot of other investors to get it. Yes, you’ll have some work ahead of you managing residents, maintenance, and other day-to-day issues until you can find a good property manager. However, if you can cross these hurdles, multifamily real estate investments are a surefire way to boost your investment portfolio.
Many people who venture into multifamily investing tend to buy smaller properties like duplexes or smaller apartment buildings with two to four units to begin. Then, after they get their feet wet with these and learn the ropes, they set their sights higher on larger multifamily properties with five or more units, which officially qualifies as commercial real estate. The more engaged they become in the process, the more they learn the truth about multifamily housing: it can be a great investment opportunity.
There are several reasons investment pros consider investing in multifamily housing an option for people to consider.
They’re considered “safer.”
There will always be a need for multifamily housing. People may not be in a position to rent or buy a home, so they will need access to duplexes or apartments. Those who own homes may experience an economic downturn, forcing them to sell their homes and move into multifamily housing. Because there will always be a demand for multifamily housing, lenders consider it a safer investment when compared to other real estate.
They help you earn passive income.
Passive income is income that you don’t have to go and work for every day, and investing in multifamily real estate is a great way of earn income this way. When you invest in multifamily real estate, you can be as hands-off as you desire.
With the right property management company and a good maintenance provider (both of which you can deduct on your taxes), you can rest easy and allow them to do all the hard work while you earn the income.
They can be easier to acquire.
Believe it or not, it can be easier to obtain financing for a multifamily investment property than for a single-family investment property. The reason: the banks consider it a less-risky option. In their estimation, it’s easier to predict the rental income of a multifamily home than a single-family rental home.
If someone moves out of your single-family rental unit, you have no income coming in from that unit. However, if someone moves out of your apartment building, your rental income doesn’t dry up; it only takes a slight decrease until you can rent out the unit again.
They compound your rental income.
The benefit that probably comes to mind is simple: more units equal more people paying rent, and more people paying rent means more money in your pocket.
Multifamily real estate can mean consistent monthly cash flow, boosting your net operating income from rental income. Additionally, having multiple families offers a protective effect: if one of your units is vacant, you still have cash flow coming in with the others to cover the cost of the vacancy until it is filled.
They offer faster growth.
Just by virtue of the numbers, you can grow your investment portfolio faster by earning income from multifamily rentals than from single-family rentals. Cash flow from multiple units at the same time will help you increase the value of your investment portfolio faster than cash flow from one unit at a time.
They have great tax benefits.
While you can realize tax benefits as the owner of a single-family investment property, consider how these benefits multiply when you have the opportunity to deduct expenses from a multifamily real estate investment. You can also enjoy the benefits of the depreciation of your units and cost-segregation tax benefits as your units and appliances in them age over time.
They can be acquired under one loan.
Each time you finance a single-family investment property, that’s a new loan payment. The benefit of financing a multifamily investment property is that you can acquire multiple income-producing units under one loan, which means only one note payment. This simplicity is a benefit for busy real estate investors.
Considering investing in multifamily real estate as a path to building wealth? Be sure to consult your financial advisor and tax professional.
Interested in learning more about building wealth? Start with the Black Money Tree! The Black Money Tree is a personal finance philosophy delivered through a curriculum that empowers Black people with the education, support and resources they need to understand and build wealth and to achieve both individual and collective economic sufficiency for generations to come.
We invite you to tune in to our Black Money Tree podcast at blackmoneytree.com. Here, you can listen to previous podcast episodes featuring guests who share practical knowledge and strategies about how to begin building wealth in the Black community. The Black Money Tree is produced by Jerome Love in partnership with the Texas Black Expo.
Those who are more investment savvy understand that there are other safer ways of investing that can yield a steady return, ways like real estate investing. They’re quick to tell you about someone they know who bought a house, renovated it, and either flipped it or rented it out for a steady stream of passive income. However, in discussions about investing, how often does the topic of multifamily real estate investing get raised?
One of the primary reasons researchers have found is that the term “multifamily” tends to evoke images of a massive apartment complex with hundreds of units. Limited in funds, the automatic response to this idea is, “I can’t access enough money to buy something like that! Something that big would be a nightmare to run!”
However, consider this: multi, which is short for “multiple,” simply means “more than one.” When you consider that multifamily housing represents anything more than one unit that houses multiple families or groups, the idea of investing in this type of real estate seems a lot more attainable, right?
Yes, acquiring multifamily real estate may require a larger upfront investment in terms of down payment. Yes, if you see a good deal on a multifamily unit, you’ll likely have to compete with a lot of other investors to get it. Yes, you’ll have some work ahead of you managing residents, maintenance, and other day-to-day issues until you can find a good property manager. However, if you can cross these hurdles, multifamily real estate investments are a surefire way to boost your investment portfolio.
Many people who venture into multifamily investing tend to buy smaller properties like duplexes or smaller apartment buildings with two to four units to begin. Then, after they get their feet wet with these and learn the ropes, they set their sights higher on larger multifamily properties with five or more units, which officially qualifies as commercial real estate. The more engaged they become in the process, the more they learn the truth about multifamily housing: it can be a great investment opportunity.
There are several reasons investment pros consider investing in multifamily housing an option for people to consider.
They’re considered “safer.”
There will always be a need for multifamily housing. People may not be in a position to rent or buy a home, so they will need access to duplexes or apartments. Those who own homes may experience an economic downturn, forcing them to sell their homes and move into multifamily housing. Because there will always be a demand for multifamily housing, lenders consider it a safer investment when compared to other real estate.
They help you earn passive income.
Passive income is income that you don’t have to go and work for every day, and investing in multifamily real estate is a great way of earn income this way. When you invest in multifamily real estate, you can be as hands-off as you desire.
With the right property management company and a good maintenance provider (both of which you can deduct on your taxes), you can rest easy and allow them to do all the hard work while you earn the income.
They can be easier to acquire.
Believe it or not, it can be easier to obtain financing for a multifamily investment property than for a single-family investment property. The reason: the banks consider it a less-risky option. In their estimation, it’s easier to predict the rental income of a multifamily home than a single-family rental home.
If someone moves out of your single-family rental unit, you have no income coming in from that unit. However, if someone moves out of your apartment building, your rental income doesn’t dry up; it only takes a slight decrease until you can rent out the unit again.
They compound your rental income.
The benefit that probably comes to mind is simple: more units equal more people paying rent, and more people paying rent means more money in your pocket.
Multifamily real estate can mean consistent monthly cash flow, boosting your net operating income from rental income. Additionally, having multiple families offers a protective effect: if one of your units is vacant, you still have cash flow coming in with the others to cover the cost of the vacancy until it is filled.
They offer faster growth.
Just by virtue of the numbers, you can grow your investment portfolio faster by earning income from multifamily rentals than from single-family rentals. Cash flow from multiple units at the same time will help you increase the value of your investment portfolio faster than cash flow from one unit at a time.
They have great tax benefits.
While you can realize tax benefits as the owner of a single-family investment property, consider how these benefits multiply when you have the opportunity to deduct expenses from a multifamily real estate investment. You can also enjoy the benefits of the depreciation of your units and cost-segregation tax benefits as your units and appliances in them age over time.
They can be acquired under one loan.
Each time you finance a single-family investment property, that’s a new loan payment. The benefit of financing a multifamily investment property is that you can acquire multiple income-producing units under one loan, which means only one note payment. This simplicity is a benefit for busy real estate investors.
Considering investing in multifamily real estate as a path to building wealth? Be sure to consult your financial advisor and tax professional.
Interested in learning more about building wealth? Start with the Black Money Tree! The Black Money Tree is a personal finance philosophy delivered through a curriculum that empowers Black people with the education, support and resources they need to understand and build wealth and to achieve both individual and collective economic sufficiency for generations to come.
We invite you to tune in to our Black Money Tree podcast at blackmoneytree.com. Here, you can listen to previous podcast episodes featuring guests who share practical knowledge and strategies about how to begin building wealth in the Black community. The Black Money Tree is produced by Jerome Love in partnership with the Texas Black Expo.