For those concerned with jumpstarting their real estate investment portfolio without a large amount of capital, multi-family homes are both attractive and investor friendly. While multi-family properties won’t compete with large-scale apartment complexes in terms of return, they offer a significant advantage over single family homes or any other type of individual unit, simply because you pay less for each unit and earn only slightly less through rental income.
Multi-Family vs. Single Family Homes
If you are purchasing one multi-family home for investment, you can consider it to be a single-family investment. However, if you are purchasing two or more homes in a multi-family complex, you can consider it as part of a multi-family.
Cash Flow – Multi-family homes offer a significant advantage over single-family, simply because you have more individual people paying rent, and therefore more money coming in at once. Because the rent for a multi-family home is only slightly lower than a single family, you also won’t lose much on monthly income per bed.
Reduced Risk – The more tenants you have in a building, the less risk you have if one moves out or one of your units is empty. This is important because a single-family home has a high risk of being empty for a portion of the year, every year. Multi-family homes have a significantly lower risk, because the chances of all of your units being empty at once are much lower.
Maintenance Costs – While it costs more to manage and maintain multi-unit property, those costs can be spread out individually based on units. Eventually, you pay significantly less per tenant with multi-family homes, which leaves you more room for upgrading, investing in a property manager, or investing in new property.
Less Competition – While there are dozens of television shows dedicated to flipping homes, very few people bother for multi-family homes. This means that there will be significantly fewer competitors bidding on the same property.
A Living Space – Multi-family properties offer a huge advantage over single-family units in that they can offer you a place to live. You may also find that living in your investment home will qualify you for better mortgage rates or a better downpayment, although you will have to discuss your options with your banker.
In short, multi-family homes cost less per unit, allow you to earn similar (but not the same) rental income per unit, cost less per unit to maintain, and offer more income security.
Choosing Multi-Family Homes
Most first time property investors should steer clear of property developments, flashy investment clubs, and large scale properties. Instead, smaller scale duplexes, triplexes, and four-to-six unit multi-family homes are a better decision? Why? You still have to invest a substantial amount, but you also get the most units for the minimum investment.
Price – It is important to pay close attention to what you are paying and why. If a multi-family home is priced too cheaply, there may be a reason. In addition, you do want to pay attention to location. If the property is difficult to market in terms of location perks such as nearby schools, restaurants, and shopping, it may be very difficult to fill all of your units. Multi-family homes are automatically more difficult to rent out than single-family homes (but only slightly) so it is always a good idea to choose an investment with location based perks. Research your market, the area, and consider asking at your local City Hall to check for any zoning permit changes, which may affect your investment in the near future.
Investing in property can be a very smart move, especially in the Seattle area, where property prices and rent rates are skyrocketing based on the high demand for housing. Multi-family housing offers you an investment that costs less per unit, making it a very smart choice for most smaller scale investors.
If you’re thinking about investing in the Bellevue area, consider contacting SJA Property management, a local Bellevue property management company for a free quote.