There are many ways to start investing in real estate. For a beginner, buying a multi-family home to rent out can be a good strategy. Four families or less per building is the perfect size to look for. This will allow you to still purchase the building with a residential mortgage while enjoying lower interest rates. Here are some important reasons why investing in an apartment building can be less risky than other types of housing.
First, it’s competition. There will be more investors looking for these single family homes. This can drive up the price of these homes to the point where they won’t make you any money. Don’t depend on inflation to generate cash flow. You need your property to generate positive cash flow right out of the gate. If you plan to become a landlord, you can also purchase an apartment that has multiple tenant options.
Then there’s the fact that you have more than one unit to rent. If you buy a single-family home and the tenant moves out of town, you must cover the entire mortgage payment until you re-rent it. With a large family, it would be highly unlikely that all of your premises would be unoccupied at the same time, giving you a bit of a cushion. If you have a four-unit building, missing one tenant might not even result in negative cash flow! This can have a significant impact on your annual income.
Multifamily units bring you more money per month. Depending on your market, a two-story or three-story property can cost about the same price as a single-family home. However, you can get more rent from 2 units than from one unit. That way, you’ll get more money per month for roughly the same mortgage payment. And that means more positive cash flow – the most important aspect of real estate investing!
The cost of repairs per unit is on average less. If you have 3 single family homes and need to replace the roof on each one, that’s a lot of money per unit. However, if you have a triplex that needs a new roof, you are effectively replacing 3 roofs with one, which lowers the cost per unit. The same applies to maintenance, the time to move from unit to unit is less, which increases labor costs.
As your real estate portfolio grows, the increased cash flow generated from your multifamily will allow you to afford a property management company if you choose. This will free up your time to find other deals or do whatever you want!
So don’t think that real estate investing is only about single-family homes. Smart investors will have a portfolio that includes a mix of single and multi-family properties. Just crunch the numbers and you may find that multi-family investing can be profitable for you!