Why Real Estate Investors Deem Multifamily Property a Good Investment
All real estate investors are given the option to select from five types of property categories to make their real estate investment
- land speculation
- single-family homes
- commercial and industrial
- retail shops and shopping centers
- multifamily property
Although each type of property share many of the same characteristics common to all investment real estate, it is also true that many real estate investors deem multifamily property their investment of choice.
In this article we'll suggest why that might be the case, beginning with three truths you should understand about multifamily property.
First, that it's considered to be any rental income property that has more than one family unit and can range from a property as small as a duplex consisting of two units to a large apartment complex consisting of hundreds of units.
Secondly, that it shares many of the same characteristics common to all properties associated with real estate investing. Namely, that investors always stand a chance to grow their wealth.
Thirdly, that it's not necessarily the "best" type of real estate investment, but rather a matter of the investor's personal experience and preference.
Okay, now let's look at what real estate investors deem beneficial about multifamily property both generally and than specifically.
First, it has the advantage to be able to support debt from the income it produces using other people's (tenant) money.
Secondly, lenders evaluate their lending decisions based more upon the property's income stream than the investor's personal financial strength. Therefore, thanks again to the income generated by other people's money, a real estate investor is given an edge in financing the investment and more likely to obtain a sound financing package than otherwise possible.
Okay, but both those benefits are also true of the other types of income-producing properties such as office buildings and retail centers, so let's narrow it down to what investors commonly consider the primary reason they prefer to invest in multifamily property.
Namely, it serves a basic need by providing shelters to those who cannot afford or who do not choose to buy real estate. Whereas a tenant may vacate an office complex or strip shopping center, for instance, people do have to live somewhere and therefore are more readily available to occupy apartment units.
With that in mind, then, allow me to suggest a few things you must do to maximize your chances of profitability with multifamily properties.
- Stay informed regarding local rental market trends. Watch the newspaper or drive around the community noting all rental properties that have vacancies. Whereas a few "for rent" ads or signs could signal a shortage of rental units and a favorable opportunity for you to raise rents, numerous signs and ads could signal higher vacancies and maybe rent reductions.
- Remain flexible with your rental policy. When there's a shortage of apartments in your market, you can be selective about the type of tenant to rent to. When the rental market shifts and there's a shortage of tenants, prepare to be reasonably less selective or perhaps to make concessions like allowing pets, for instance.
- Management problems associated in dealing with tenants can be the downside to buying any income property. So consider hiring the services of a professional property management company to deal with the day-to-day issues of running your rental property.
- If the former property owners let the property run down and rents decreased to keep the units filled, consider an opportunity to upgrade the building and raise rents. When multifamily properties are in a good area of town or in an area that is returning to a former higher quality, remodeling a rundown apartment complex can be a profitable venture.
- Obtaining a sound financing package that doesn't place excessive burdens on the property or yourself is paramount to your investment in multifamily properties. Therefore always present lenders with clear and concise cash flow reports that show the income and expenses accurately.
Here's to your real estate investing success.