Should You Invest in a Multifamily Property?
There are many potential investors who are exploring their options in the real estate space; multifamily properties are an attractive option. Their appeal comes from the fact that most people have an above-average understanding of how the rental process works due to personal experience; this makes the transition much easier. A multifamily property is simply one that has multiple units. These are great for new investors who are looking to gain some experience in the field. You can even live in one of your units to make the process easier for you and be more accessible to tenants. Should you invest in a multifamily property? This depends on your budget and how much work you are willing to put into this venture.
Financing & Expenses
Did you know that multifamily properties whose owners live on-site receive lower interest rates on financing and require smaller down payments? This means you get to spend less money upfront as well as over the course of the loan. Not to mention, you won’t have to hire a property manager and pay them a salary since you will be around to ensure things are running smoothly. If your property contains five or more units, it shifts into the commercial real estate world. A property with five units or more is also generally more costly to finance than one with less; a good thing to keep in mind.
There are a variety of upsides that come with purchasing a multifamily property. For one, you will likely have a steady flow of cash coming in each month. Having tenants and charging them rent means that you know exactly how much you will bring in each month as long as everyone pays on time. Leasing out your space is a great way to provide yourself with a consistent passive income source. In addition to that, multifamily properties tend to grow in value over time and are more capable of weathering changes in the economy. This is because, when the economy is in a bad spot, people often need a place to stay quickly. Multifamily properties will always have some sort of demand. Your money is much safer in a property like this compared to other investments, so if you don’t have any experience in real estate this is a great starting point. Multifamily properties also come with tax perks for the owner.
While there are plenty of good things that come with investing in a multifamily property, there are some negative things as well. The first is that there will be a lot on your shoulders in terms of overseeing your property.
Of course, you can always hire a property manager, but this does not exactly take away from the stress. You still need to manage multiple lease agreements and deal with different tenants who have different personalities and preferences. While most tenants will opt to pay rent online if it is an option, some might prefer to pay by check or even cash if you accept those. You will have to remain organized when dealing with multiple payments. Some tenants might need maintenance often for whatever reason or even cause damage to your property; which you will have to pay to repair once they are gone. Maintenance calls are expensive for you since you not only have to pay for issues within the unit, you also have to pay the maintenance person. You will also have to decide how you want to communicate important information such as city water repairs so that your tenants have a heads up on when their water might be turned off. The problem is that not everyone checks their emails, which is why many property owners send out mass text messages to all of the residents. You will need to adapt to multiple tenant types and handle any issues that arise with grace. Adding to that, multifamily properties, particularly those with five or more units, can be quite pricey. You will need to consider your budget and compare prices on the market to see what you can realistically afford. Not only do you need to consider the cost of the property, but you also need to consider the down payment and also the cost to make said property livable. As an investor, you will need to make a down payment of at least 20%. You will also need to calculate the costs of household appliances, general upkeep, etc. If you are considering investing in a multifamily property, make sure to do thorough research. This is a great deal if you are someone with decent savings who wants to have a lucrative, passive income source.