Advantages Of Multifamily Ownership
While real estate, in general, is a great choice as an alternative investment, the multifamily sector offers certain significant advantages over other classes of real estate. Apartments have a long track record of having the highest risk-adjusted investment returns compared to other property types. By their very nature and contrary to other property types, apartments offer greater flexibility and adaptability to changing market conditions. Multifamily properties can vary more widely in terms of vintage, size, quality, and location. This creates a broad spectrum of opportunities and investment strategy options that are not as prevalent in other sectors.
Time And Efficiency
Investing in apartment buildings is much more efficient as much less time and energy is required to acquire 60 units in an apartment building than acquiring the same amount of units in single-family homes. There is good ROI with multifamily property investing. With one of its benefits being the economy of scale, it means you can do more for less. Some of the benefits of apartment building investment include lower cost per door, effective and profitable management type, and any improvements implemented could increase the value of more than one unit.
You can buy multiple units under one roof in one transaction. The same transaction can net you 5, 10, or 100 units. The process might be a little bit more involved due to the number of units, however, in basically the same amount of time, you can acquire so many more units.
Of course is no such thing as a course, risk-free investment. All investments have a risk. However, they don’t have the same risk. Therefore, minimizing risk is an important part of maximizing reward. Investment in the basic need of shelter. Unlike business products that have a useful shelf life but eventually get replaced, apartment buildings aren’t going anywhere.
Mankind has always and will always need a roof over its head. Multifamily housing allows you to own more rentals with fewer loaned dollars. Commercial loans can have more flexibility in profitable properties, and they typically don’t get reported to your personal credit. Our nation’s housing policies should reflect the importance of multifamily rental housing, the range of capital sources that support this market, and the need for liquidity and stability in all market cycles.
Fifteen million households rent homes in multifamily properties, and the number is expected to grow. A broad range of capital sources support the multifamily finance market, including private capital sources
If the roof needs fixing, you only need to fix one roof. You only need one insurance policy, and so on… Whether you own a single-family vs. multifamily property, you’re still managing one property manager. A building that has five or more units is eligible for a commercial loan. These loans are much easier to obtain than residential loans because they’re based more on the investment (the building) than all of your own personal assets and liabilities. For those of you who have gone through the residential loan process in the last 10 years, you know how much paperwork is involved. For the multifamily building I purchased, it felt like a 10th of the paperwork of a single-family home was necessary.
Insurance for apartment complexes is there to protect apartment buildings from property and liability risks. This insurance also covers other structures like garages, office space, fences, common areas, swimming pools and storage buildings. There is more income in apartment buildings than in single-family homes investments. Apartment building investments also change lives as they provide good residential places and jobs to many staff members within the properties and also vendors.
Concentration Of Units
Multi-units allow you to consolidate multiple rental units on the same parcel of land, thereby allowing you to maximize your performing asset (the building units) while minimizing the “overhead,” so to speak, of the underlying land that you’re required to purchase. If 1 unit becomes vacant, you can work on it (paint, put in new floors, etc.) but still be collecting rent from your other units/tenants.
A multi-unit building has only one roof, one set of gutters, one basement or crawl space, one yard that needs termite bait stations and pest control. This represents consolidated overhead. Rather than pay to replace four unique roofs on four SFR’s, you can replace one roof on a 4-plex. Why drive to four properties when you can drive to just one? Property management can be easier in a multi-unit, since a trip to one building can allow you to visit many more tenants.
Management And Labor Considerations
The advantage of investing in multi-family properties is staffing requirements. Since all units are located in the same general area, responding to repair and maintenance requests is usually less time consuming and requires fewer workers. In some situations, negotiating contracts with outside firms for repair and maintenance can eliminate the need for extra staff. Generally speaking, volume and preventative maintenance contracts lower per service rates.
Something else to consider is the amount of repair and maintenance required to keep an individual home in working condition. Some experts suggest that a stand-alone home takes more time and money to keep in working condition because single-family homes are usually larger than apartments and have more people living in them. If you’re planning to self-manage several single-family properties, you might find that each home has a different type and brand of air conditioner, water heater, dish washer, roof and other appliances or construction materials.
A typical apartment building has the same appliance styles and brands throughout – which makes ordering replacement parts less expensive and easier most of the time.
Tax and Record Keeping Considerations
One of the great benefits of being a landlord is the tax deductions you can take advantage of. These deductions, however, can be complicated, so it is important that you keep detailed records of all important documents, income, and expenses throughout the year. Being organized and keeping the proper documents can help you maximize your deductions and reduce stress.
4 Reasons to Keep Records
• It will make it much easier to file your taxes.
• Having everything recorded will help keep you from missing out on any deductions, which will save you money.
• It will help you make sure you are filing accurate claims. Instead of guessing, “I think I paid that contractor $1,000” by quickly pulling up a spreadsheet, you will know you paid him $850.
• In case you are audited or the IRS has any questions about items on your tax return, you will have the proof to back up your claim. If you do not have this documentation, you will find yourself spending time and money trying to find the proof. Worse, if you are not able to come up with a receipt, your claim will not be honored and you may even have to pay additional taxes and penalties.
You should keep a digital copy (computer) and a hard copy (paper) of all of your records. You will want to use a spreadsheet to keep track of your income and expenses. You should do this as soon as the income comes in or the expense occurs. Also, you will want to make sure you have a paper copy of your most important documents. If possible, you will want to store them in some sort of fire retardant filing system or safe deposit box. If you are unable to find one large enough for all your files, you will want to keep the most important ones, such as the titles to the property in this box. Categorize everything by year and then alphabetically sort the files so they are easy to find.
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
What are the advantages of multifamily ownership?
- Time And Efficiency
- Market Liquidity
- Transaction Costs
- Concentration Of Units
- Management And Labor Considerations
- Tax and Record-Keeping Considerations
What is multifamily ownership?
Multifamily ownership refers to owning properties with multiple units, typically with 2-4 units or more.
What is cash flow in multifamily ownership?
Cash flow is the amount of money that is generated by a property after all expenses have been paid.
How does multifamily ownership reduce risk?
Multifamily ownership reduces risk by spreading it across multiple units, which can protect against market fluctuations and increase tenant retention.