Real-Estate is a form of investment that will appeal to those who are concerned about the volatility of the stock market. As an investment, it also offers more opportunity to have active participation in the investment process, rather than investing in a stock market fund that is managed by someone else. No one strategy fits all situations and several investment strategies may be appropriate. One such strategy might be to participate in multi-family real estate investing.
A Multi-Family Investment property is a property in which there are multiple homes within one building, or complex. The size of these investments can vary. Multi-Family Real Estate Properties can become a very lucrative investment. Typically, they are classified as either small investments (that contain between two and four residential units), and large, which will have more than five family units. There is an interesting read on financial freedom through real estate investing and I would encourage you to check it out.
Advantages of Multi-Family Real Estate Investments
This type of property is one of the better strategies for Real Estate investment and typically will earn a higher ROI (Return on Investment) than single occupancy properties. This is because there is more security with multiple tenants and the property will generally be better at producing a positive cash flow. The secret is to monitor occupancy and vacancy rates. Empty units produce no income and drag down the results for the whole property.
Vacancy Rates with Multi-family real estate investments
When renting out a single occupancy property it is very easy to move from a zero vacancy rate to a 100% vacancy rate. It is very unusual for the landlord of a property with multiple tenants to have 100% vacancies. Even with a couple of vacancies, the landlord will still be making some money. A far more secure situation.
In a market with high demand for property, this will result in higher occupancy rates, which will increase the ROI of the investment. This kind of market is a particularly advantageous one for investors in multi-family real estate investments.
Easier to Finance
Experience has shown that it is typically easier to obtain finance for multi-family real estate investing than for a single-family home, as the lender has expectations of a positive cash flow. Obtaining insurance for multiple residential properties is also cheaper than obtaining individual policies for each family unit within a property.
Less Competition when Buying Properties
Most investors tend to focus on the purchase of single-family homes. Consequently, when a property comes onto the market there may be several investors interested in the property. Far fewer people invest in multi-family real estate investments, and so an investor will have greater chances of successfully buying the property they are interested in. This also has an impact on the financing, since fewer competitors will be seeking finance, thus making the process simpler.
Disadvantages of Multi-Family Real Estate Investments
Multiple Tenants to Deal With (Multi-family real estate Investments)
Because you are investing in a property with multiple tenants there will be work involved. Instead of one tenant contacting you, there may be many. If you are attempting to manage the property yourself this could be quite intrusive.
Hiring Professional Property Management
Handling multiple tenants and dealing with rent collection and resolving problems may not suit everyone. In this scenario, many investors choose to employ professional property management professionals to take over this work. This, of course, comes at a cost and will cut into profits.
Fast Growing Portfolios
If an investor is seeking to grow a large portfolio quickly, purchasing investment properties that are multi-occupancy is much faster than buying single properties, one by one, all over a city. Many very successful investors have built substantial portfolios this way. However, as we said in the beginning, No one strategy fits all situations. And this route may not be one for investors of every temperament.
Investing in Multi-Family Real Estate has many advantages. Check out my post on multiple strategies for different investing ideas. It is slightly more complex than investing in a single occupancy property. There is less competition, it’s easier to find finance, cheaper to insure, and more secure. You should certainly get a higher ROI compared to a single occupancy investment. There could be more stress dealing with multiple tenants. But, that is only true unless you hire a professional property management company. They will take the day-to-day management of your investment property off your hands. As an investor’s empire grows, so eventually a property manager becomes even more essential.
The very interesting thing about multi-family real estate investing is that you don’t have to buy the 400 unit high rise first. You can invest in multi family units that are 2 to 4 doors. Duplexes and Triplexes are great ways to get started with this type of investing strategy and most of them do not cost more than a regular house. Maybe you live in one of the units and rent out the other three. That’s free mortgage!
Before you go…
Once again, this is only one aspect of the asset quadrant. The wealthy have seven streams of income from all four asset classes. For more on the asset classes, check out my other posts on Stock Market Investing. So, if you really want to find that financial freedom, you need to create a business that can become turn key to not only fund some of your real estate deals, but a business that makes money while you sleep. That is true financial freedom.
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