10 Reasons to Buy Residential MultifamilyApr 28, 2021
Over the last decade, the FIG team has been focused on building new construction multi-unit investments in Utah, Texas, Idaho, and Arizona. FIG's build-to-rent communities typically consist of 100-400 doors of townhome-style buildings platted as 2-4 unit residential multifamily. While we do branch out beyond the fourplex, our niche is primarily based around the fourplex, duplex, and triplex. Many of the reasons we stick with these non-commercial investing projects will be listed below...
Two to four unit investments enable a slew of advantages over the typical single-family-style real estate property. Once you start exploring the up-sides of multifamily, you'll realize that the potential benefits are numerous and the quality of its perks are hard to pass up.
Today we list 10 reasons to buy multifamily:
#1 Cash Flow
When dealing with a multifamily unit, there are various ways to increase cash flow.
First, you can create a positive income ripple effect by increasing the existing rent per unit or by decreasing overall expenses.
Another option is to appreciate your property by providing better amenities (ie. a laundry room, club-house, dog park, etc.). This affects affect the value of each unit collectively. For example, our Edgewater fourplex development packed lucrative maximization by offering a rich amount of amenities including 1GB internet, 150 Dish Channels, Community Clubhouse access, weight room, pool, kiddie pool, splash pad, jacuzzi, basketball courts, and pickleball courts.
Costs are streamlined when owning a multi-unit property. When compared to a single-family home, the expenses for repairs, cleaning, waste removal, and landscaping are greatly reduced on a per-unit basis. Shared common spaces and building structures allow for greater consolidation of spending, leaving more cash flow for profit.
#2 Less Competition
As an investor in the single-family market, you're competing against thousands of home-buyers who all have different objectives. This leads many buyers to over-pay for a property due to a subjective emotional reaction to décor or sentimental attraction to a particular location.
As Brandon Turner from BiggerPockets.com puts it, "non-investors... buy property for WAY too much money because the front porch is 'so cute' or the backyard is 'perfect for Fido!'"
In multifamily investing, you compete in a market with other investors, normalizing the competitive rates of available properties.
#3 Streamlined Loan Process
No one likes the paperwork or scrutiny involved in applying for a loan. Yet going through this process is unavoidable for real estate investors. While single-family homes require a new loan per property, multifamily investments allow an investor to maximize the benefit per loan. In receiving a loan for a duplex, triplex, or fourplex, you've acquired one loan for double, triple, or quadruple the rental possibilities. There's less hassle per unit for profit.
#4 Easy Management
Multifamily investment properties allow you all the perks of cash flow without the annoyances of acting as landlord. These types of investments are designed for management to be outsourced to a management company. The cost of such outsourcing is often configured into the cost of owning the property from the outset.
This arrangement allows for you to be the executive godfather of a property without having to deal with the dirty diapers of everyday tenant situations. You can sit back and profit from your investment while remaining hands-off and keeping your hands clean.
All of the investment properties associated with the Fourplex Investment Group offer property management that includes discounted rates for purpose of increasing the yields for our loyal clients.
#5 Minimal Risk
When you own a multi-family property, you have multiple revenue streams pouring into a single investment. Losing one tenant only has a partial impact on your expected revenue. In contrast, owning a single-family property makes you greatly dependent upon a single source of revenue. If you lose that tenant, you're left feeding money into a unit where you no longer have any source of cash flow. Obviously, you're left a lot more vulnerable in the single-unit market.
The term "house-hacking" refers to owner-occupied multifamily property. This means owning a duplex, triplex, or fourplex and living in one of the units while renting out the others.
Here's the idea: the rent you collect from your other units is more than enough to cover your loan and expenses, leaving a leftover profit. Basically, you get paid to live in your own property. This is a pretty sweet setup that a single-family dwelling could never offer. This strategy is best used on an existing property, however.
#7 Tax Benefits
According to ApartmentVestors.com, "Multifamily investments have higher after-tax yields due to a shorter depreciation schedule." Beyond this favorable tax advantage, owning a multifamily unit qualifies you for many tax breaks...
The government treats the business of multi-unit management favorably because you're providing a public service by supplying your community with safe, clean, and affordable living spaces. You could even qualify for grants in some areas to help with initial costs.
Or, you could roll over your 401K into an investment property, which provides tax advantages from the IRA. If you invest in a multifamily property, make sure you make it your business to explore every tax advantage available to you.
#8 Consolidated Insurance
When dealing with multiple properties, that means dealing with multiple insurance policies, which can be a major headache.
Alternatively, when you invest in a multi-unit property, you get to consolidate several rental spaces into a single, streamlined insurance policy. That's less paperwork to keep track of and less conflicting information to keep straight.
The multifamily market is a lot more flush with renters seeking units than those looking to rent single-family homes. People are always in need of affordable living spaces.
Typically, it will take less time and cost less money to fill each economical multi-unit space as opposed to the more expensive single home alternative. And when it comes time to sell, multifamily units maintain their value, as long as you've done your due diligence in making sure the property has been well managed.
#10 Impact Lives
Since consolidating costs allows for you to manage more units for comparable single-unit money, you get the opportunity to supply more individuals with comfortable housing.
The demand is so high for multi-unit renting that it's obvious there is a great need. What a fortunate situation multifamily investing generates: positive cash flow for you, the investor, and meaningful domestic creation for countless individuals in need.