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There are many different options for investing in commercial real estate. One popular way is investing in multi-family units such as duplexes, triplexes and apartment buildings. This is a great way to start in commercial real estate investing. It is rather simple to understand and is typically less complicated than investing in other commercial spaces such as offices, hotels or other retail spaces. While it is a popular investment option, it doesn’t mean it is a walk in the park, and is certainly not for everyone. Here is a short list of some of the pros and cons of investing in multi-family properties. 

What are multi-family properties?

Before we dive into the pros and cons, it is important to know exactly what classifies multi-unit properties. Simply put, these are properties that contain more than one unit. Once you get past duplexes, triplexes or fourplexes, properties with 5 or more units are a little more complicated to deal with. These larger properties typically have a different form of financing and management. Some multi-family units can get as large as apartment complexes or high rise apartment buildings. Most multi-family properties cater to the local demographics as far as residents or apartment features.  

Pros of investing 

  • Cash flow/passive income- One of the main reasons people like investing in multi-family properties is for the extra monthly income. This is a predictable and typically reliable market that generates steady cash flow annually. You typically make more money with multi-unit housing rather than a single family home. 
  • Lower risk- Since you are dealing with multiple units, the chances of you having a complete vacancy is very low. The demand for housing space is almost always present, even during economic downturns. People will always need a place to live, so it is typically a relatively safe investment .
  • Loan/insurance simplicity- Luckily, insurance policies for multi-unit properties are fairly simple. You typically only have to deal with one policy, although it might be more complicated the more units or amenities you have. Many insurance companies are good about finding you the right policy and sometimes even giving you a “blanket” policy to cover all of your assets. 

Cons of investing

  • Management Requirement- One con to owning these types of properties is the demand for maintenance. While you can outsource property management, you still deal with numerous tenants who all have different issues, needs and schedules. The more units you have the more time (and money) will be required to maintain them.  
  • Cost- It is no secret that these properties are significantly more expensive than single family properties. Once you start dealing with properties that have three or more units, the price increases dramatically, and it can be tough to get enough cash for the typical 20% down payment. This is one of the main things that can be very challenging for investors to get past starting out.
  • Experience demanded- Typically, these properties are targets of highly experienced investors. This means that you will probably have more competition if this is your first time investing, and might need to partner with someone who has more experience than you. You might have a hard time getting tenants or pricing your units properly if you cannot compete with others interested in investing in the property you are looking at. 

Investing in multifamily properties can seem overwhelming. While there are many moving parts and things to consider, we have a team of experienced professionals ready to help you through the process. Contact us if you are interested in investing and need help finding the perfect property!

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