In 2018, the trend of investing in multifamily properties has become more relevant to generate consistent and positive cash flow, double-digit the income, and get an array of significant tax benefits. Once you have got your tenderfeet wet in real estate business and learned the ABC of investments, you can comfortably make bigger bets and dive into the realm of large-scale multifamily investing.
However, there are some important factors which will help you determine how big your first multi-unit deal is going to be:
- Comfort level
- Business plan
While some investors believe in owner financing, others (vast majority of them) seek out competent and reliable commercial property loan services that will help get their hands on private money for their very first deal. If you are interested in finding out how to jump-start your career in multifamily investing, then this comprehensive guide will help you map out your career path and embark on the million-dollar journey.
1. Economies of Scale
What’s more attractive and beneficial – managing 15 different residential properties, including duplexes, studio flats, etc., across the city or 15 home-units under one single roof? Each of 15 properties has to be landscaped and maintained separately, which would make it difficult for you to achieve an economy of scale and decrease marginal costs. Conversely, financing a multifamily property is more profitable and productive as it offers you numerous benefits, including:
- You need to hire only one maintenance crew, manager, and security guard.
- You can increase your marketability and profitability.
- You can generate multiple streams of income from one single investment.
- You can decrease your expenditures as well as marginal costs.
- You can achieve a sustainable and scalable business quickly, and more.
2. Reducing Risk with More Units
Let’s say you own a single-family apartment that is vacant for three months. And it’s you who will be paying the incurring expenses, including mortgage payments & interest, service charges, property taxes, maintenance costs, etc. Moreover, an empty property will not produce any rental income, which means the net income, cash gain, and cash flow of your business is negative.
However, if you have a 10-plex building and two of ten tenants decide to evacuate. Your vacancy factor is only 10 percent. The remaining eight renters will provide you with a direct and positive income stream to cover the expenses. By having multiple tenants in one single building, you can reduce the downside risk of an investment. Not to mention, your property will generate a positive cash flow and sufficient revenue stream to cover all the expenditures at every month’s end.
3. Higher Property Appreciation
Single-family residential properties are usually purchased on the basis of comparable sales approach. In this method, valuation is executed by comparing the sales prices of similar properties sold in the area. Generally, the comparables or comps are solely responsible to drive the value of the property. If there is no alteration between the closing prices of the properties, you won’t have any control over the market appreciation and won’t be able to sell a single-unit apartment at the higher cost.
In contrast, multifamily residential properties are valued based on their net income. Now, you must be wondering why this distinction is so important. As an investor, you get a direct control over your multi-unit property, which means you can drive up the Net Operating Income (NOI) by forcing the appreciation through renovations, increasing rents & decreasing expenses. Every $1 increase in your NOI will add around $10 to your property’s overall value.
Conduct a property, market, and neighborhood analysis and compare your multifamily estate to other properties while focusing on amenities, nearby attractions, rental rates, etc. After completing the evaluation, develop an effective management strategy to improve your property’s performance and generate a positive cash flow.
4. Saves A lot of Time and Expenses
Before making your final decision, you must take into consideration the expenses and time that you will spend to acquire, let’s say, 20 single-unit apartments as opposed to one 20-unit complex. Even if you are lucky enough to bundle several houses together, you still need to make numerous arrangements to close multiple deals. Not to mention you have to visit every single property before making a purchase offer.
As far as a multifamily property is concerned, you need to visit one property, negotiate with one owner, and perform single closing only, thereby saving you the time and expense.
If you are interested in switching from single-family homes to multi-unit properties or are looking for a multifamily housing program in Rancho Cucamonga, CA, then contact us for a quote. Call us at +1 (951) 634-2477 or drop a message at firstname.lastname@example.org.