Multifamily properties generally reduce the risk of a total vacancy. Unlike single-family homes (when losing a tenant means they're 100% vacant), multifamily properties give you the opportunity to spread cash flow between 2 and 4 homes. While all investments carry the risk of loss, multifamily investments, on average, are better. With a single-family home, all your proverbial eggs are in one basket.
If that fails, you could lose significantly. Multifamily investments are not without problems, but they do not have the same volatility in terms of income. Investors can depreciate their multifamily property to offset a large portion of the rental income they collect from the property each year. When based on a per-unit basis, the cost of building a multifamily property is more affordable than other types of real estate.
By contrast, suburban properties fared better, as both secular and cyclical factors, income uncertainty, preference for outdoor options, the need for more space, and more millennials with growing families needing schools drove demand for submarket apartments lower density and lower cost. A multifamily property will generally consist of owning the property and land in a registered deed. Instead of buying one property at a time, these investments allow you to purchase several properties within the same building. Some may even employ the owner-occupancy strategy initially, as a way to “really live the property management lifestyle before investing in larger multifamily properties.” Sometimes an investor buys a multifamily property without the landlord occupying it or hiring a property manager, which can make management more time consuming, requiring the owner to visit the unit in person to make repair and maintenance requests.
The amount of money multifamily properties produce each month gives their owners space to take advantage of property management services without the need to significantly reduce their margins. However, a multifamily property generally generates enough income to allow investors to hire a property manager to handle day-to-day operations and take care of necessary repairs. Two- to four-unit multifamily properties are a great way for first-time investors to immerse themselves in the waters of rental properties, as they are typically financed by banks in the same way as single-family homes. Either way, this type of property can accommodate multiple occupants, either as individuals or families.
You should also consider property value increases, monthly NOI increases, or tax breaks given to owners of multifamily properties. At first glance, it might seem that getting a loan for a single-family property would be much easier than trying to raise money for a million-dollar complex, but the truth is that a multifamily property is more likely to be approved by a bank for a loan than an average home. Investors should look for high-growth, high-yield areas where properties are in high demand and well-maintained neighborhoods when investing in multifamily properties. Properties that have only one residential rental unit are commonly referred to as single-family properties, while apartment complexes that have multiple rental units are known as multi-family properties.
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