Have you ever considered investing in residential rentals? If so, have you considered multi-family units with up to four apartments each? Multi-family rentals represent just one way to invest in residential real estate and generate consistent monthly returns for as long as you hold the property.
It is obvious that multi-family units are not the only option. Investors can also put their money into single-family homes and commercial apartment buildings. Every option has its pros and cons. But as far as multi-family homes are concerned, here are five great reasons to invest in them:
1. More Bang for Your Buck
For the purposes of this post, a multi-family unit can be a duplex, triplex, or a larger home that has been subdivided into multiple apartments. With that definition in hand, the first great reason for investing in multi-family homes is the fact that you get more bang for your buck.
Imagine owning a 2,000 square-foot Victorian just outside of the city center. You can rent that home for $1500 per month. You could also subdivide the home into three apartments of just under 700 square-feet. Renting them for $700 apiece would generate $2,100 in monthly rental income. By subdividing, you are earning $600 more per month.
2. Greater Income Stability
Multi-family units are attractive to some investors for the simple fact that they offer greater income stability. With a single-family home, you lose your income in between tenants. You stand to lose quite a bit of money if you cannot find a new tenant shortly after the current tenant moves out.
In a multi-family unit however, losing one tenant for a few months is not as devastating. The rest of your tenants are still hanging around and paying their rent. In the end, this translates into greater income stability.
3. Greater Cash Flow
Along with greater income stability comes greater cash flow. A subdivided home with three units brings in more cash on a monthly basis than a single-family home. That leaves investors with more cash to make improvements and handle maintenance. Both are key to maintaining a property at a high enough level to maximize monthly rental rates.
4. Solid Funding Options Available
When it comes to funding real estate investments, banks and credit unions are more willing to look at duplexes and converted homes. Serious investors with large portfolios tend to have access to hard money and bridge loans from private lenders as well. That being said, not all hard money lenders are willing to go the residential route.
Salt Lake City’s Actium Partners is one such lender. They are happy to help obtain a commercial apartment building. But single-family homes, duplexes, and larger homes that have been divided are generally off the table.
5. More Affordable Taxes
From a tax standpoint, single-family homes may be the best option of all. But multi-family homes put investors in a much better tax position compared to commercial apartment buildings. For starters, property taxes tend to be lower because lot sizes are smaller. Furthermore, capital gains taxes are more reasonable because they are more in line with the real value of the property should an investor decide to sell.
Multi-family homes have a lot to offer from an investment standpoint. They are not the best choice for every residential real estate investor, but they work well for investors who have the financial resources to adequately address property management and acquisition. An investor who wants to put money into residential rentals but cannot swing a multi-family unit can always look at cheaper and easier-to-acquire single-family homes.