Of all the options available for investment when building your real estate portfolio, investing in multifamily housing is the most affordable and has some of the best benefits. Even if you have relatively less disposable income, it is a preferred option. Multifamily units tend to have fewer vacancies because there is a high and constant demand for such housing units.
With a wide array of properties available for investment, investing in multifamily properties offers many advantages. So what are the main benefits of investing in multifamily units?
This is one of the main advantages of investing in multifamily properties. Since multifamily properties are in high demand, you can expect a high occupancy rate, especially for those properties located in strategic locations. Since the occupancy rate is high, the average monthly revenue will be higher compared to any other type of real estate investment. By investing in various multifamily properties in diverse locations, you will have the advantage of multiple, steady income sources generated from this type of investment.
When you calculate your investment on a per-unit basis, it will be far cheaper to acquire multifamily units than other types of real estate properties. This makes it cost-efficient and ownership comes with minimal risk. Even when applying for mortgage loans, the interest burden for this type of investment tends to be less. Financial institutions prefer to finance such property since the default rate is lower on apartment buildings compared to single-family units. With interest rates being lower, the operating costs for this type of investment are cheaper.
Logically, it is easier to manage a couple of apartments in one building as opposed to managing them if they are scattered around the city. This practicality would even justify employing a property manager to avoid facing daily management hassles. Typically, large multifamily properties are managed by an investment group, and they hire the property manager. The owner has to pay them a management fee and they will take care of your apartment units as a part of the entire multifamily community.
Since multifamily units help to ease housing in cities, the government gives tax breaks as an incentive to invest in them. There are various tax breaks offered depending on the classification of the property, which increase your revenue on investment.
One of the main advantages of investing in multifamily units is that the value of the asset increases with time and what’s more, the rate of appreciation tends to be higher than any other type of real estate investment. By maintaining your property well, you can get a higher rental value and it also helps attract more renters.
As with all types of real estate investments, investing in multifamily properties carries a risk. However, it carries the lowest risk. One of the main risks is the vacancy rate of the units that you own. The chances of all tenants leaving at the same time are low, so you will be generating at least some income from your investment. It will help with timely repayments of loan installments. As long as you have done your due diligence and made a strategic investment choice, your assets will continue to appreciate over time.
If real estate investment is one of your main vehicles of savings, you can increase the size of your portfolio faster than with any other type of investment. It is easier to acquire one property with multiple units compared to multiple single-family properties. Also, since they are easier to manage, the cost of ownership is less, and the revenue stream will be relatively steady. Even if there are adverse market conditions, the risk of default is less, and it will not set back your investment plans.
Though all real estate investments carry their own benefits and risks, investment in multifamily units is the investment of choice. Once you do your due diligence and decide on which property to invest in, you can expect your investment to grow over time and keep generating a steady stream of revenue.
About the Author:
Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors.