A lot of people desire to own some type of rental and investment property. For many the first step is looking into a multifamily property. Multifamily properties are really popular for real estate investors because they are one of the easier avenues to get started with. So, what do you need to know about investing in a multifamily property, let’s take a look.
Why Should You Own Multi-Family Property
What Is a Multifamily Property?
A multi-family property is a property that has more than one dwelling unit. These can be duplexes that can serve as a home to two families or even triplexes or fourplexes. A two to four-unit multifamily property is a great way to get started as a first-time investor so you can get comfortable managing a small number of tenants. Oftentimes investors begin this journey by getting an owner-occupied small manufactured property. This means they will live in one of the units while renting out the rest. This allows you to learn how to self-manage and save money on the need for a property manager.
A larger multifamily property will have 5 or more units and will feel more like owning a commercial real estate property. A property with 5 or more units will qualify for a different type of financing that will likely be more expensive.
There are several benefits to investing in multifamily property.
One of the biggest reasons investors like multifamily properties is because it will generate cash flow each month. if you’re in a strong market then the right is likely predictable.
Cash flow is a crucial element when investing in properties. Positive cash flow, where rental income exceeds expenses, brings numerous benefits. Firstly, it provides a consistent income stream, allowing investors to cover mortgage payments, property maintenance, and other expenses. Positive cash flow also offers financial stability, acting as a buffer against unforeseen circumstances and vacancies. It enables investors to build equity and accumulate wealth over time. Cash flow can be reinvested into other properties, expanding the investment portfolio. Additionally, positive cash flow properties often appreciate in value, offering potential capital gains in the long run. Overall, cash flow on investment properties enhances financial security and fosters wealth creation.
When you invest in multi-family real estate you provide yourself with a way to generate additional income without any hard labor. You can even hire a property manager to take on the day-to-day responsibilities of managing the rental.
Multifamily properties also appeal to investors because you are able to scale on them and build your investment portfolio little by little. This is the easiest way to scale your portfolio. When you buy one of these properties you immediately have more than one rental.
There are tax advantages when you have multi-family investments. Most investors mortgage the property and then deduct the mortgage interest paid during the fiscal year and this tends to be higher in the first few years of ownership as the loam begins to amortize. To know more about your tax benefits worked with a tax professional.
Diversity of Product Types
When you invest in a multi-family property type then you are investing in a small neighborhood-oriented property. You can choose a newly renovated property or look for a newer property to invest in. There are many different types of multi-family property so you are able to diversify just in this one particular property type. Multifamily provides tremendous optionality given the many product types that make up this category.