A great way to ensure cash flow is by entering the housing market by becoming multi-family investors. The real estate market can be a safeguard for your investments now and in the future. Multi-family properties comes in many shapes and sizes and the undertaking of multi-family investing often produces lower risk than other real estate investments. Despite all of its positive attributes, negatives can also be seen within mult-ifamily investing and the information provided within this article will help the real estate investor to decide if investing in the multi-family housing industry is the right decision for them.
Once an investor decides that multi-family housing is for them, there are several types of multi-family housing units available.
- High-Rise: A building with at least nine floors and at least one elevator that contains many tenants.
- Mid-rise: Has less than nine floors and only one elevator.
- Duplex: One story structures that encompass two separate housing units that are usually side by side, however they can have one housing unit on top of the other.
- Townhouses: Two to four-story residences typically attached side by side.
- Garden style: Units aptly named due to the garden like setting that surrounds the dwelling. Garden style units can have between one and three stories with or without an elevator.
- Walk up multi-family unit: Made of four to six stories domicile and no elevator (from which it derives its name).
Another option is the manufactured housing community, where residents lease the land from the land owner and live in single-family manufactured homes. This option allows residents to feel more secluded in their own home however generates a stead cashflow for the land owner. Another example of multi-family housing units is special purpose housing such as student housing, senior housing and affordable housing. Student housing like it sounds is for students attending college and universities. Senior housing is for the aging population and features areas such as retirement homes. The affordable housing sector is affordable housing for lower income families.
There are many advantages to becoming a multi-family investor. An advantage to this type of investment is that it feels more like a business since the investor can be less emotionally attached to the building. The immediate portfolio can be attained through this type of investing showing more than one tenant compared to a single-family home. One such benefit is the economy of scales which includes time, management, maintenance, cashflow and tax breaks. A lower risk profile is also a benefit since there is one property compared to many single-family homes. There is also only one loan to obtain instead of the multiple loans which would be required for multiple properties. Financing is typically easier for the multi-family investment being that there is only one building holding many tenants. Also keep in mind that only one insurance policy is required on the building. In general, this type of investment also has less competition when purchasing the multi-family housing units.
As a multi-family investor, you are in control of appreciation and value. The investment will show a long-term value and permit you to collect cashflow for a lengthy time. Student housing is a great example of this, as it not only has a higher cash flow, but there is a built-in demand for housing and students tend to leave the property in good condition. There is a huge market for affordable housing as there tends to be a large pool of possible tenants.
Despite the positives of multi-family housing, many investors lean towards the single-family homes. One difficulty faced in multi-family investing is the tenant quality and tenure (tenants do not stay as long since they sign a year to year contract).
Also, units have more potential for disagreements between tenants (since they live in close proximity) and investors must spend time addressing these problems. The overall management time is also increased due to multiple tenants.
The bigger the building, the bigger the cost. Being that they are large buildings, multi-family investments cost more upon entry. Another disadvantage is that regulations are stricter. The upkeep and maintenance on the building is also more complicated than a single-family home. Another shortcoming with this type of housing is that there are fewer buyers at the end when it comes time to sell the building.
Limited locations are another problem that multi-family investors may encounter since there are more single-family homes than multi-family units.
An additional disadvantage concerns those in student housing. Although it tends to have the higher cash flow which we mentioned earlier, it also comes with a shorter rental time due to the student tenants. Senior housing also poses problems with monthly fees for upkeep and maintenance as well as having limited investment properties. Another drawback seen within affordable housing is that most are located in remote areas in shoddier areas.
Invest in the future with multi-family housing in the real estate market. There are many positives to investing in multi-family housing units. Advantages include but are not limited to lower risk, only one loan and easier financing for one loan. Negatives of this type of investment are more tenant disagreements, higher initial cost, and that they require more management time. Investing in multi-family housing has a variety of constructions and structures to choose from. After weighing the pros and cons of multi-family housing, many investors may find that it’s just what they’ve been looking for.