The 5 Money Making Advantages of Multi-Unit Investing
Real estate can be a great investment opportunity for those who do not wish to invest in the stock market or simply want to diversify their portfolio, especially if you want to take a more active role in growing your capital. There are plenty of options available for investing in real estate, like flipping houses or renting out single-family homes. However, what may be more lucrative is investing in multi-family units.
This boils down to basic math. When you have a single-family unit, you only have one person paying rent. However, when you have a multi-family unit, there are multiple families paying rent, therefore, a better financial gain. With a higher cash flow, you can also afford to hire a management company to manage your properties for you so you do not have to worry about it.
Economy of Scale
You have four single-family homes; you have four lawns to mow and four roofs to repair if something goes wrong. Even if you own a handful of duplexes around town, that is still a handful of properties to manage instead of having all of those tenants in a single building. With a multi-family unit, you have those four families all living under a single roof that you need to maintain and with a single lawn to mow. If you cover utilities for your tenants, the entire building is lumped into a single bill, which can be much more affordable than a bill for each individual unit. Collecting rent is also much easier when everyone is in a single building, and it saves you gas because you do not need to run around town collecting rent from every tenant.
Easier to Buy
There is much less competition for buying a multi-family unit than for a single-family unit. It also is much easier to close for one multi-family unit than it is to close six individual homes at once. You only have to visit a single unit, you only have to negotiate with one owner, and you only have to go through a single closing. This can save you a lot of time in the long run.
If you own a single-family unit and it sits vacant for three months, you are stuck paying for its upkeep and the mortgage payment that whole time, causing you to lose money. With a 10 unit property, even if you have three units vacant for three months, you still have seven tenants in there paying rent, so you are not going to lose as much money overall.
Multi-unit properties also can be easier to finance for this reason, because there is theoretically at least one tenant occupying the property and continuing to pay rent, so lenders tend to see this as a less risky investment.
Property value usually goes up over time. However, with a multi-unit property, it may appreciate in value at a much faster rate especially if you keep the property well maintained.
You can purchase the property with only a small amount of your own money, borrowing significantly more from your lender. This means the investment is considered "highly leveraged."
To use leverage, "You invest $10,000 of your own money to buy a property and borrow $90,000 from a bank. By combining your money with the bank loaned money, you're now able to buy a $100,000 asset.
"Let's assume that each year, for 10 years, your investment property will appreciate by 5%. Here is where the ability to leverage benefits you. The appreciation is on the entire $100,000 asset, not only the $10,000 of your own money."