7 Benefits Of Investing In Multi-family Homes

Investing in multi-family homes is a real estate investment strategy that can be very rewarding for investors, with less risk than other strategies. Multi-family properties are buildings with multiple units in a single property, letting multiple tenants rent space. These can range from a duplex to multi-building apartment complexes. While the cost of investment is usually higher than single-family properties, the potential for much higher returns is also more likely. As such, many real estate investors find them attractive opportunities.

Let’s look at 7 ways investing in multi-family homes can be a lucrative way to grow your portfolio.

1. Higher rental income

As owners are able to collect rent from multiple tenants based in a single location, the income from these properties is higher than from single-family properties. This enhanced cash flow can provide a substantial income stream for the real estate investor, allowing them to meet their ROI targets faster.

2. The lower risk posed by vacancies

Since each multi-family property has several tenants, ranging from two to hundreds, losing one or a few tenants will not adversely affect monthly income. This is one of the most appealing aspects of multi-family properties as it significantly lowers the risk when distributed across multiple tenants.

3. Securing financing is easier

The more stable and higher income also makes multi-family properties easier to finance. Lending institutions usually see these projects as lower risk due to the higher rental income and lower risk of vacancies. This could also allow investors to obtain lower interest rates. Additionally, only a single loan is required to cover the entire property, regardless of the number of units. If you were to invest in multiple single-family properties, you’d have to apply for numerous individual loans.

4. Shared maintenance and administration

It is possible to combine maintenance and administration activities to cover all of the rental units, which can lead to significant savings over the long term, making them more cost-effective to manage at scale. Materials, labor, and related costs can be distributed over multiple units, reducing the overall cost per unit.

It is common for investors to offload the management of the location to professional companies or property managers, further reducing the involvement an investor needs to take in their property.

5. Strong demand

With a growing population, mass urbanization, and more people choosing to rent rather than own their property, there is a strong demand for multi-family properties. These factors lead to higher rental income and occupancy, and should a tenant vacate, filling the unit is relatively easier than other property types.  

6. Tax benefits

The government provides multiple tax incentives to multi-family properties to encourage the growth of housing available for residents in a city which real estate investors can take advantage of. Some tax benefits can include depreciation, cost segregation, and 1031 exchange. The tax incentives you would be eligible for vary depending on your property classification, so always research the benefits you can take advantage of for your new investment, reducing taxable income and increasing your returns.

7. Diversification

A multi-family property is a quick way to increase portfolio diversification as you gain access to multiple units within a single investment rather than possibly investing in multiple single-family properties. It is also usually possible to liquidate the asset at once instead of having to find buyers for individual properties, but this of course depends on several factors outside the property type.

Conclusion

As highlighted above, investment in multi-family properties comes with various potential benefits, including lower risk. Though the initial outlay of capital may be higher for the acquisition or construction of these properties, the actual cost per unit is typically lower than for single-family housing, which leads to quicker profits at scale. As we also mentioned, multi-family properties are also attractive for real estate financiers, so should you need to evaluate funding options for similar properties, please reach out to the RE Investor News team. We specialize in finding veteran and new investors funding for their investment projects, so contact us now for expert advice.

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