For the last twenty five (25) years, multifamily investing has showcased stellar results to real estate investors. Based on a study, it was proven that between 1992 and 2019, the multifamily asset class has garnered an average annual return of almost 10%, which is a bit higher average as compared to any other kinds of commercial real estate. The same average is also higher for owners of single family units across a significantly same time frame, based on a Study reported in Texas.
And because of a common misconception in terms of multifamily asset class, some real estate investors veer away from investing in multifamily units and pay close attention to single family units for renting. And because the Investor relations team here at www.rebykayle com transact with thousands of clients annually, we wanted to share in this article what we have discovered to be the most traditional misconceptions in terms of multifamily investing as compared to single family investing:
- It is not cheap to buy a multifamily property. Buying a multifamily property will somehow cost more than buying a single family unit in a similar geographical location. But, recognizing a multifamily real estate property as expensive is misleading.
First, one benefit of investing in multifamily real estate is that it has the capacity to give freedom for investors to obtain residential property for less, on a per-unit basis, as compared to building a portfolio by buying a single unit property at a time. In that regard, one could say that buying a single family residence each time can be a bit expensive and that the approach in multifamily investment will be a lot practical.
Next, even though it will likely cost a lot of money when purchasing a multifamily property as compared to a single family unit, this does not simply mean that an investor can outright afford a multifamily investment. There are some practical ways to acquire financing to obtain a multifamily property like a traditional private financing and bank loan. With a good credit standing, and with the help of specialists from www.rabykaylee.com , you can be able to obtain your dream investment in no time.
- Vacancies in the units will devastate the profitability of the property. With a single family unit, an investor only needed a sole tenant for it to be fully occupied, while in multifamily investment, investors would require finding and maintaining multiple tenants to fill 100 percent multifamily buildings. Consider the flipside of this point.
With a single family unit, if the sole tenant vacates the place, such investment goes out from fully occupied to entirely vacant. This simply means that income on that specific property drops to nothing and will simply remain zero until such time that the investor can find a new tenant.
A multifamily-property, however, has the advantage of an income stream coming from a series of tenants, which can be recognized as more stable simply because even if one tenant leaves, such property will not be entirely vacated. The investor still has all other tenants in place.
- Financing will be a bit of a complex idea. The basis of residential loans is on the financial capability of the borrower which links to existing financial obligations, present debts, income, credit standing and a lot more. In contrast, lenders essentially assess multifamily commercial real estate loans based on the property itself. Ergo, if an investor can find a practical multifamily property with solid financials and features that a future investor may shell out more, the investor should have the capability to secure suitable financing.
- Maintenance of the property is a bit expensive to implement. The idea of paying operational and maintenance costs in an apartment unit might seem to be a little daunting and out of reach for the traditional investor.
But, multifamily properties take advantage of economies of scale, giving freedom for proportionate price savings because of a production increase. Meaning, since there are several individual housing units in a multifamily property, and a fixed price for the entire property, the investor can potentially gain a significant amount of savings in expenses on a per unit approach.
Another way to comprehend this idea is to consider the expense of owning a so-called quadruplex building as compared to owning four individual single family unit apartments. Each unit will have its own separate expense and maintenance as well as operational costs. With a multifamily property, by comparison, any expenses like painting, landscaping, fixing the air-conditioning system or making a leaking roof can potentially be applied to the entire property. Meaning, they share expenses as well as operational costs. Fixing the HVAC on a four-unit structure fundamentally means fixing all the air conditioning units all at the same time. Hence, as stated in the Forbes article, the per-unit cost of maintenance and operational expenses can be lessened for a multifamily building as compared to single unit residences.
But wait, there’s one final misconception. By realizing that multifamily real estate investment is essentially a viable real estate investment strategy, it is also worth paying close attention to another misconception that some individuals have about real estate as a whole; “it is a passive income/investment”.
Unluckily, this is not the true case. No matter how smoothly a multifamily property or shall we say, single family unit or even any type of real estate investment for that matter, seem to be running, in the event that an investor purchases the property on a direct approach, that investor is recognized as an active investor. Even if it is possible to outsource all the day to day operational duties and regard everything to a property management firm, the investor will still have to come up with decisions, answer questions, and deal with quandaries relating to the property. That is regarded as an active more than passive kind of investment.
If the prospective returns of multifamily investing sound enticing but coming on a direct responsibility in terms of managing a multifamily property does not, there is another approach that is truly passive in nature, and that is investing in multifamily properties by means of an online platform. www.rebykaylee.com supply investors access to investments in multifamily properties reinforced by our team of specialists and experts in the field.
At the end of the day, real estate investing of any class, such as multifamily investing, has its own share of risks and passive income assets entirely carry the present risks of the loss of both regular and principal income either because of the issues with the investment or more so, general market downfall.