The multi-family investment strategy is considered as one of the best real estate strategies to create consistent cash flow. In fact, around 90 percent of the world most influential real estate billionaires use this strategy.
However, according to a 2018 research by CBRE, from 1992 to 2017, the multi-family real estate investment space has the second lowest level of volatility (7.75%). It has also provided the highest average yearly total profits (9.75%) of any commercial real estate investment space. This statistic is just one of the reasons investors should consider investing in multi-family properties. Without further ado, let’s discuss several other reasons why investing in multi-family real estate space can be a smart deal.
Larger and Consistent Cash Flow
One of the benefits of investing in multi-family properties is that it provides the investor with consistent and large cash flow. In a single-family property, for example, there is one unit and therefore one source to receive payment. This means that the owner or investor expects payment from a single tenant. However, in Multi-family properties (like a condominium, duplex, triplex, etc.) more units are available. So renting out all the units provides the investor or owner with more than one income stream. This means that even if some of the units are vacant for months, the owner can still spread the expenses of the unoccupied units over the occupied ones. Therefore, multi-family properties have lower chances of foreclosure.
Easy to Manage Property
Consider having multiple single-family properties spanning across a metropolitan or having one multi-family property with several units in one location you will realize that you can easily manage the multi-family property than the single-family properties located in different places.
For example, instead of negotiating with different sellers, having to deal with several closings, and working and managing your team in single-family investments you will negotiate with one seller only, deal with one closing and easily maintain one multi-family property with several units. Therefore, investing in multi-family property makes it easy to coordinate and manage your property.
Fast Way to build Portfolio
Are you looking for ways to quickly build your portfolio and reach the top of the ladder? Multi-family real estate investment provides you with a faster, easy, and stress-free way to build your portfolio. For example, buying a multi-family property with 20 units means you have increased your portfolio by 20 units unlike buying a single-family property. By doing this, you reduced the stress involved in buying 20 different single-family properties in different locations across a metropolitan.
Ability to Adjust Quickly to Changing Market Conditions
Another reason why investing in multi-family properties is a smart deal is that it can adjust to changing market conditions quickly. Multi-family properties only offer a shorter-term lease typically one year. So, this makes it adapt to the changing market that may be caused by inflation or market condition. Unlike most other commercial real estate markets, that has a typical lease term of at least five years, the price of a multi-family property can be changed at the end of the lease term. This means that multi-family real estate investors can easily increase rent with changing market conditions.
Easier to Secure Financing and Better Mortgage Rates
Most people would think securing funding for a single-family property would be much easier than multi-family properties because the single-family property is cheaper. But the bitter truth is that the lenders (both conventional and private) prefer to approve multi-family property investors to the single-family investors. Why? Multi-family properties pose less risk to the lenders as the more the units in the property, the more consistent the monthly cash flow, and the lesser the borrower’s chance to default on loans.
Also, according to a 2017 research carried out by Real Capital Analytics, the multi-family investors enjoy better funding and rates compared to the other commercial real estate market. For example, the typical mortgage rate for the commercial real estate sector is 4.5%, which is high compared to 4.25% for multi-family investments. This means that mortgage lenders prefer multi-family investment properties to the single-family properties.
Forced Property Appreciation
As a rule, in real estate investment, property appreciation doesn’t just happen. You have to force the appreciation, either by renovating some parts or by adding some amenities that will benefit the tenants. In the multi-family property, you have several options to increase the value.
For example, in single-family investments, no matter the type of renovation you do on your property, you are only expecting to appreciate the price for one unit. However, for a multi-family property with 10 units, just fixing things that make the property more appealing to the tenants will help push up the value of all the 10 units and increase your income exponentially.
Increased Demand for Workforce Housing (Multi-family Properties)
A 2017 State of the Nation’s housing study carried out by Harvard Researchers showed that although the construction of high-end “Class A” properties has increased lately, it has still not met the demand for multi-family properties (Class B and C properties).
The simple interpretation of this research is that the multi-family investment properties are facing a shortfall and the demand for the properties is on the rise. So, investing in the multi-family space is a smart deal as the demand is on the rise and no need for unnecessary competition.
Diverse Exit Strategies
Another important point most investors consider when choosing an investment type is the “exit strategy.” Multi-Family investment properties offer diverse exit strategies to investors. There are varieties of ways to discard a property you are no longer interested in. You can sell it if you like or you can convert units in the properties to condos and sell each condo separately. You could invite partners to invest in the property to partially cash you out. Or you could create a new note asset by offering the building on seller financing terms. There are many more exit options available to multi-family property investors.
Investing in the commercial multi-family real estate can at first seem large, complex and a tedious task but on the contrary, it is achievable. Accessing the space is easy with several benefits including securing financing easily, building a portfolio quickly, having a consistent income stream, adjusting to market condition and other numerous benefits not mentioned here.