Real estate investing is a time-proven method for creating wealth and diversifying your portfolio. If you already own a short-term rental or vacation home, you are well on your way to success. However, it is essential to note that other real estate investments can help you generate income faster and earn a much higher rate of return. Visit residecapital.com to learn more about multifamily real estate passive income and how it can benefit you on your quest for wealth.
Multifamily real estate, also known as a multi-dwelling unit or MDU, is a classification for multiple separate housing units contained within one building or several buildings within one complex. In these buildings, units can be side by side or stacked on top of each other. The most common forms of multifamily real estate include housing cooperatives, townhouses, condominiums, and apartment buildings.
Any building where multiple tenants reside is considered multifamily real estate. However, there are important distinctions between what is deemed commercial real estate and what is deemed to be residential. That distinction dramatically changes the financing of purchases—the difference between residential and commercial lies within the deeds. For example, properties like townhomes and condos are considered residential because there is a single deed. However, purchasing an apartment complex is deemed to be a commercial real estate investment. For example, duplexes with up to four units are traditionally listed under a single deed, so while duplexes can hold multiple tenants, they are often considered residential properties.
Owning multifamily commercial real estate is not for everyone because of the investment that it requires. However, in recent years, investments in multifamily have seen excellent returns. Here are reasons they might be a good investment for you:
Though we can never predict what the stock market may do in the coming months, renters will always need homes to live in. If you enjoy taking an active role in growing your portfolio, owning rental real estate can be a great way to diversify your investments and generate a steady income over time.
Multifamily homes are the highest income-producing properties for building your wealth. While you can rent a single-family home to one family at a time, you can rent a duplex to two families. If you multiply that, apartment complexes or large multifamily properties are sure to generate higher returns much faster.
As young people continue to age out of their parent’s homes, many are renting before they buy. As a result, young professionals are a critical demographic for multifamily housing close to city centers, with rental demand rising.
When managing a single-family rental, losing a tenant could mean loss of income until new ones are in place. With multiple families living happily in numerous units, there's often less disruption to your budget if one chooses to move out.
Owning multiple units ensures a more significant income to offset the cost of hiring someone to manage your property. In addition, if you decide to manage the property on your own, having units so close together makes it easier to maintain them. Good maintenance means less tenant turnover.
Though it will require a larger down payment, lenders feel much more comfortable approving loans for buildings with multiple tenants because there's less risk of cash flow stoppage.