Real estate investing offers plenty of options for those looking to build wealth through this particular avenue. With mortgage rates as low as they are today, now is a great time to get into the real estate investment market, and a multi-family property is something you might want to consider for many reasons, including the following.
1. You Can Live in One Unit and Rent Out the Other(s)
If you’re just starting out in the world of real estate investing, a multi-family unit can be the perfect way to get your feet wet. You can live in one unit while you rent out the other unit(s) to generate cash flow. Buying a duplex, triplex, or four-plex will give you the unique capability of giving you a place to call home for yourself while boosting your real estate portfolio and building wealth.
2. Managing Multiple Units in One Location is Easier
If you plan on buying more than one property to rent out, having them all in one convenient location makes it a lot easier for you to maintain them all. It’s a lot simpler and less time-consuming to maintain three properties all under one roof compared to three properties spread out across the city.
You can make one stop to pick up the rent checks, mow the lawn, handle any repairs, and so forth. Even if you hire a property manager to handle the maintenance for you, you’ll only need one to handle multiple units in the same complex versus units that are miles from each other.
3. You Can Get a Tax Break From a Multi-Family Property
The government actually appreciates your efforts to provide safe, clean, affordable housing to people. As such, you’ll be able to take advantage of some tax breaks. Your investment in a multi-family complex is considered to be a business, which means there are certain tax deductions that you’ll be able to make. You can depreciate many items in a rental property come tax time.
Depreciation refers to the actual cost of the complex, which is not fully deductible the year that it was actually bought and paid for. You can get back the cost of your investment property through this depreciation, which involves deducting a portion of the property’s cost over many years.
You can also deduct interest from your mortgage, cost of repairs, traveling for rental activity, property insurance, and legal and professional services associated with the property.
4. They’re Easier to Finance Than a Single-Family Home
For the most part, multi-family properties are more expensive than single-family homes for investment purposes. Obviously, a typical one-bedroom condo unit would be a lot cheaper than a 12-unit apartment complex.
While it might be easy to assume that getting a mortgage for a single-family home would easier than raising money for a much more expensive multi-unit complex, in reality, the latter is more likely to be approved by for a loan than the typical residence.
Why? Multi-family housing can generate a healthier cash flow consistently each month, even if there are some vacancies in the complex. The more units in a complex, the better. For instance, if a tenant moves out of a single-family home, that investment property would be completely vacant. Instead, a four-unit complex with one vacancy would only be 25% vacant in comparison. For this reason, the chances of the multi-family complex going into foreclosure because of vacancies is a lot lower than with a single-family home.
5. You Can Make the Property Appreciate Faster Compared to a Single-Family Property
Appreciation is something that owners of real property can take advantage of over the long run. However, not all locations and properties appreciate at the same rate. In many instances, property values are stagnant or even depreciate over certain time periods. However, appreciation often occurs after improvements have been made, either to the property itself, or the surrounding neighborhood.
While you can force some amount of appreciation of a single-family home through various improvements, you can only do so much because you are forcing the appreciation of only one property. A multi-family complex, on the other hand, can increase in value much faster than a single-family home simply because you’ve got more units to deal with.
Boosting curb appeal, adding in-suite laundry amenities, making repairs to the units and common areas, and replacing all the windows and doors, for instance, can drive up the value of the property more aggressively. By making such improvements, you’ll be making your property more attractive to tenants compared to another nearby building, which will make it easier to fill vacancies and keep good tenants sticking around for longer.
The Bottom Line
Looking directly to single-family housing is quite common for newbie real estate investors. While this might be the right option under many circumstances, multi-family properties shouldn’t be ruled out. There are certainly plenty of benefits of purchasing a multi-family complex that should be considered before you make your purchasing decision. An investment like this can prove to be a very lucrative one if made with due diligence and the right team of real estate professionals behind you.