Investing in any sort of real estate is a big step, and for many it includes either spending a sizable amount of an existing portfolio or savings, or getting a grant or loan to help with the investment. While any sort of property investment, including basic single family homes, should include basic risk assessment and ROI assessment, some types of property automatically offer more value than others simply because they offer a higher potential for return. In this case, multi-family homes offer one of the best available returns versus initial investment.
Lower Initial Investment
The first consideration is that a multi-family unit is technically a lower initial investment. Lower property value means lower mortgage values and lower interest rates, all of which very much benefit the buying investor. While property costs more as an initial investment, the promise of return is worth considering as well.
For example, a single family home (3-4 bedroom) that retails for average retail price of $380,000 and rent it out for roughly $1500 a month. Now let’s say you purchase a 2 family home for $549,000 (average for a 2-3 unit home is $499-699,000) and rent each unit out for $900-$1,100 a month. Technically you’re increasing your monthly income without spending too much more, you get an extra unit, and you pay back your investment faster. The more units you purchase the more expensive the initial investment, but also the more affordable each unit costs. For example, a two person home costs right around $200,000 more than a single family home, saving you around 20-30% depending on the location and condition. When you buy a four family home instead of a duplex, you could reduce rates by as much as 75-80%, and pay somewhere around $150,000-$250,000 per unit.
Because the rental rates don’t change unless the units are smaller, you win by getting more units with very little extra investment.
Easier to Invest
Multi-Family homes also have a number of advantages to smaller investors, mainly due to the type of loans and investment possibilities. A larger five door apartment building must be financed commercially, making it harder to invest. On the other hand, a multi-family unit with four or more doors can be financed personally, meaning that it also qualifies for a standard 30 year mortgage. A 30 year mortgage is a great way to invest and lock in a standard mortgage rate, and then make returns on the rent rates without worrying about paying more for the home than initially stated.
Unfortunately, buying without commercial backing does have it’s faults as well. You will have to back a minimum of 20% of the down-payment, and then finance the other 80%.
If you are ready to invest in a multi-family unit, don’t forget that you need the cash on hand to keep up with maintenance, tenant screening, and filling units, because unfortunately, unless you hire a Sammamish property management company to help out with the details, your units won’t fix or fill themselves.
Want to know more about how a property management company can help you with filling your units and managing day to day details like maintenance and paperwork? Contact SJA Property Management today to talk to one of our associates.