Why Should You Invest in Multifamily Real Estate?

David Cohn
Oct 28, 2020
Multifamily Properties

Stock market investing is not for everyone. You might not like it if you are averse to volatility or if you want to actively take charge of growing your capital.

Real estate investing may be just the alternative you are looking for. There are many different properties available—including commercial multifamily loans—and you can apply multiple investment strategies to help yourself succeed down the line.

Take it from real estate investors like Zhang Xin and Donald Bren. Their billion-dollar fortunes were established when they developed various commercial and residential properties.

Sam Zell, an Equity Residential founder, built his wealth by gradually acquiring an income-producing rental property portfolio.

Other real estate investors can also make millions from purchasing properties and then flipping them to be sold to new owners.

Why Multifamily Real Estate?

Rental property investing is not an entirely new concept. It has been practiced for centuries, but it is still relevant today—particularly for investors looking for an investment strategy that can provide them with an extra income source monthly while being backed by a slow yet steady appreciation of their portfolios' value.

As you get into it, you will come across two significant properties you can invest in Multifamily and single-family. Single-family properties are exactly what their name suggests.

These are residential buildings with a single unit available for rent. Multifamily properties, on the other hand, are buildings with multiple units of dwelling for rent.

Building a portfolio out of single-family rental properties may be attractive because it has fewer barriers to entry.

However, it may be in your best interest to invest in larger residential complexes—mainly commercial multifamily properties.

Here, we'll share reasons to get into multifamily real estate:

  1. It's Much Easier to Finance.

The prices of apartment buildings are typically higher than what single-family homes cost. And suppose you are new to real estate investing.

In that case, you may also think that getting a loan for single-family properties is more comfortable than raising money for a multifamily complex.

But this is not always true. Banks love giving out loans for multifamily properties.

That's because multifamily real estate is known to generate consistent cash flow each month, even if there are some vacancies or some late-paying tenants.

If a tenant vacates the single-family home, that makes the asset completely vacant. Not so for a multifamily property.Look at it this way:

If a multifamily building with ten units has one vacancy, then the building would only be 10 percent unoccupied. It's unlikely for the entire property to be completely vacant.

This is why foreclosures very seldom happen on multifamily investments.

They are less risky compared to single-family rental properties in the eyes of lenders. This is why it's often easier to get a multifamily mortgage.

In many cases, lenders may even be inclined to provide competitive interest rates for loans like these.

  1. Grow your Portfolio Fast.

If you want to build your portfolio quickly, then multifamily real estate may be a better investment.

That's because it provides a relatively big portfolio of rental units. It's more time-efficient and simpler to buy a 20-unit apartment complex than to purchase 20 individual homes.

If you choose the latter, you will have to spend more time working with many different sellers and doing different property inspections.

That also means getting 20 separate loans for every home. You can avoid all that hassle by investing in multifamily real estate.

  1. Have Someone Else Look after Your Property.

It usually doesn't make sense to hire a professional property manager if you only have one or several single-family homes for rent.

But it becomes practical to do this for a multifamily real estate building. If you are like some investors, you are hands-on with property management too daunting and time-consuming.

Hiring a reputable property management company to take care of your rentals' day-to-day operations will be necessary.

The property manager is usually paid a percentage of the property's monthly income.

Their duties typically include seeking and screening tenants, handling evictions, collecting rent, overseeing the property's condition, and initiating maintenance work when necessary.

Most investors who own two or three single-family properties are not usually financially sound to hire an external manager.

However, multifamily real estate investors can earn more money from their multifamily properties. They can hire property managers without worrying about dipping into their margins.

  1. It's Less Risky Overall.

From an investment perspective, multifamily housing is much less risky because the income comes from different tenants. Unlike retail and office properties that have to attract some anchor tenants to thrive, multifamily properties are simpler to rent out. It's quick and cost-effective to find new tenants, and vacancies are more comfortable to fill. After all, people will always need a place to stay.

  1. The Demand for Rentals is Still Strong.

Regardless of the economy, people will always need shelter. Multifamily real estate continues to be in demand as young people move out of their parents' homes, people move into town looking for reasonably priced dwelling, and older people are downsizing and preferring to move into a smaller, more manageable household.

  1. Multifamily Properties fill the Luxury Gap.

Newer apartment buildings are being built sustainably with greener spaces and within easy reach of entertainment and lifestyle facilities. Some are even set above shopping complexes. This way, they can cater to the modern lifestyle, and they can satisfy the need to live luxuriously.

  1. There is Hidden Value in Improvements.

Property enhancements and capital improvements offer almost instant payback, primarily when they result in higher rents. Renters may be willing to pay more if the units are enhanced in a way that can add more value to their lifestyle. Such improvements can be in appliance upgrades, home automation and smart home technologies, and high-end security locks.

  1. Rents can Keep up with Inflation.

That's because year-long terms for the lease make apartments benefit from improvements in the market conditions.

Rents can be higher as wages rise. The bottom line is that multifamily real estate could be a good way to generate steady income and diversify your investment portfolio.

Multifamily properties can multiply your income, and the added costs will be incremental.

Their compound returns are also more comfortable and quicker to finance and may easily benefit from economies of scale.

Keep in mind that real estate investing is similar to stocks that require you to apply different strategies to succeed. One good strategy is to own a collection of rental units—preferably multifamily real estate—if you want to grow your portfolio fast.

Help is just around the corner.

Should you need help in multifamily real estate investing, you can always approach Capital Investors Direct.

Our full-service commercial real estate investment advisory firm specializes in providing custom loan solutions to investors. We will make sure that you can find the right loan for your investment if conventional banks refuse to lend you money.

Discerning investors trust capital Investors Direct for low-interest rates, fast closing, the simple application process, and highly customized structure for loans.

We can finance commercial real estate projects of all sizes, including multifamily properties.

Through our team, you can find quick and easy loan solutions as per investors' and lenders' objectives and goals while ensuring that your project's needs are continuously prioritized.

Using top finance technology, Capital Investors Direct can provide many different investment solutions to meet your real estate investment needs.

The options include hard money Lenders for commercial real estate, Commercial real estate bridge lenders, jumbo loans, construction loans, permanent loans, and stated income commercial loans.

Get in touch today to tell us about your project.