Real estate can be an option for those who cannot withstand the stock market’s volatility. Multifamily Property Lending is also a better investment for investors who want to take an active role in growing their capital rather than passively putting their money into a fund managed by someone else. One of the advantages of real estate investing is that several strategies can be used successfully.
What is a single-family house?
A single-unit dwelling structure. A detached single-family home has open space on all four sides and is not attached to any other structure. A single attached house is separated from other structures by walls that extend from the ground to the roof.
What is a Multifamily Home?
A multifamily home is a property with different units that families can live in. The term is generally used to describe a two to four-unit property. Duplexes are a type of multifamily home.
Advantages
The type of rental you buy plays a big role in profitability. So let’s take a look at the pros of each:
Multifamily Apartments/Condos
- Owning multiple apartments in the same building can help you buy more properties and benefit from lower management fees. In some cases, however, the management fee may be negative.
- With the demand for apartments being very high, you can always get a good rental price for an apartment in a building that is in good condition and new, between 10 and 25 years old.
- If you are interested in real estate investment, choosing multifamily housing allows you to obtain cash, improve your profitability and buy two apartments for the price of one house.
- Less expensive accommodation appeals to a greater number of tenants, which reduces the risk of vacancy.
- Multifamily involves many more tenants and, therefore, more questions and problems you may have to deal with.
Single-family homes
- Single-family homes are appreciated across the globe, and in some places, the price growth is not stopping. The demand is insatiable. Single-family homes are generally bought for their price because their price-to-rent ratio is high.
- Typically, you only manage one tenant. Houses are a more liquid investment than multi-unit housing and are easier to sell.
However, it is riskier to have a single property with a smaller pool of potential tenants (due to higher rental prices).
Is it a good idea to invest in a multifamily property? | Multifamily Property Lending
if you invest in a multifamily property, live in one of the apartments, and rent out the rest, you may qualify for a Multifamily Loan Program. For a newbie real estate investor, this can be a great strategy because multifamily loans require a very small down payment compared to other investment real estate loans.
If the rental income from your multifamily home is enough to cover your mortgage payments, you will be able to live for free. However, keep in mind that you will need to live on the property for at least 1 year.
Benefits of Multi-Family Investment Properties
When investing in real estate, multifamily properties come with tremendous benefits.
- Cash flow
One of the major benefits of investing in multifamily real estate is the promise of reliable monthly cash flow from rental income. While detached houses have only one tenant or group of tenants, multifamily properties have multiple tenants who pay rent. Therefore, you will likely have cash flow from other units if there is a vacancy in one unit. But before investing in multifamily properties, do your due diligence and develop an investment strategy.
- Easier to finance
The fair market value of multifamily houses will almost always be significantly higher than that of single-family homes in the same area. Still, it is also easier to obtain financing for multifamily properties when it comes to investment properties. In addition, multifamily properties aren’t as risky for banks because an apartment building’s cash flow is more predictable than a single-family rental, so you might be able to shop around for interest rates.
For example, if you have four units and a tenant moves out unexpectedly, your rental income only drops 25 percent until you can return the unit. However, if the same thing happens in a single-family rental, you would have no income during a vacation, which poses a greater risk to your lender.
- Scalable
If you’re looking to grow your investment portfolio, investing in multifamily real estate is a much faster way to grow than single-family rentals (which you should acquire one at a time). It also offers the opportunity to move into investing in commercial real estate as larger multifamily properties (those with five or more units) begin to fall under commercial real estate, with cash flow opportunities still more important.
- Tax benefits
Multifamily Property Lending offers attractive tax advantages. You can deduct maintenance and operating costs, including utilities, property management fees, maintenance and repair expenses, insurance premiums, and all marketing expenses.
In the long term, you can also take advantage of real estate depreciation and cost separation tax benefits as your building and its appliances age, even if the property’s fair market value is technically on the rise.
- Passive Income
Investing in real estate in strong real estate markets is a great way to earn passive income. For example, suppose you hire a property management company to take care of maintenance and communication with tenants. In that case, you will have little day-to-day work on your multifamily investment property. This means you’ll have more time to focus on your day job or your next investment.
We hope now you know which property you should invest in. However, if you need prior information and want to invest, you can count on VP Capital Lending.
