It’s a good time to invest in multifamily units for many reasons. Approximately 35% of the U.S. population rents, and the demand for rental housing is strong. On top of the market appeal, the convenience of multiple units situated in one location cannot be overstated. Below, I’ll cover some of the reasons you should consider investing your money into multifamily properties.
Much of what makes multifamily units so attractive as investments is the ease of management when compared to their single-family counterparts. Would you rather oversee fifty single unit houses or one apartment complex with fifty tenants? Housing all your tenants under one roof is the much more convenient option and requires you to only pay for one property manager.
Larger Return on Renovations
Besides making management easier, another great reason to invest in multifamily units is that it consolidates your tenants into a single property. This means renovations you undertake will offer higher returns on investment. Again, this comes down to scale. Adding a single laundry room to your apartment complex increases your income both through higher rent prices and the fee charged for tenants to use the washer and dryers. Compare this with the cost of adding new laundry equipment to every single-family house you own and it becomes clear why multi-family units are so attractive.
One of the perceived downsides of multi-family units are the short term leases. Where an office or retail property may lock in a tenant for 5+ years in a single lease, multi-family tenants often sign leases for 12 months at a time. While not as convenient as long leases, shorter terms mean you can react quickly to changing markets. If your area experiences a boom, you’ll be able to respond with higher rent prices quicker, instead of failing to maximize rental income with a long term lease that was signed when the market conditions were less favorable.
Multi-family units also spread risk out among many different tenants. If a tenant vacates, you can still rely on the rent of the remaining tenants to minimize loss and maximize returns. With single units, if you are without a tenant for a couple months, the entire mortgage falls on you to pay.
As you can see, much of what makes multi-family properties so great is the economies of scale they offer, and the act of purchasing the unit is no different. When buying a fourplex, you are negotiating with one owner. Purchasing four single unit house however would involve talking to four separate sellers, increasing the likelihood something will go wrong during the process.
If you’re looking for new challenges, consider talking to a broker about whether you should invest in multifamily units. There’s a lot of bonuses naturally tied into them, and this is a great time to be involved with the market.
Troy Muljat is a Washington State certified commercial appraiser and broker with over 25 years of experience in the commercial real estate industry. He holds the Certified Commercial Investment Member (CCIM) and Certified Property Manager® (CPM) designations through the National Association of Realtors.He specializes in brokerage, leasing, property management, development, and commercial appraisal.Visit TroyMuljat.com for more information about Troy.