If you plan to diversify your real estate investment portfolio, multifamily investments might be suitable for you. Unfortunately, most real estate investors still focus on single-family dwellings. However, you can earn a steady income from rentals and learn real estate investing basics of acquisitions, renovations, and selling with multifamily real estate investments.
Residential properties made up of more than one housing unit are multifamily properties. Any housing configuration that can be considered a duplex, condo, townhome, or apartment complex is referred to as a multifamily home. In most cases, multifamily dwellings are occupied by an investor or owner in one unit, while the others are rented or sold. As a result, new investors to the real estate market may find multifamily properties an easy way to appreciate their capital.
Building a real estate portfolio with both single-family dwellings and multifamily properties can be educational and rewarding. Multifamily real estate investments should be a welcomed opportunity if you do not want to limit your opportunity for capital gain. The following are key points to consider when focusing on multifamily real estate passive income:
This process is the best way to determine the most profitable multifamily investment opportunity of the options available to you. Multifamily investments can provide you with income sources like rental fees, parking fees, storage fees, etc., and expenses like maintenance and repairs. To determine the most profitable option, using the 50% rule can be beneficial. This rule allows you to use half of your expected income to represent the expenses you will incur.
Use your estimated monthly cash flow to estimate how much of your monthly mortgage payments you can pay off. Then, subtract your monthly mortgage rate from your NOI to determine your cash flow opportunity. You can decide if a multifamily investment opportunity is viable with an estimated cash flow figure in hand.
Finally, it is essential to determine the capitalization rate. Or cap rate. This calculation is crucial to consider in any investment because it will show how quickly you will attain your ROI. In addition, the cap rate will help you decide whether a deal is safe to invest in. To determine a cap rate, you will multiply your NOI by 12, dividing it by the property's market value. For example, a cap rate between 5-1% has a moderate risk factor but promises a significantly higher return than a cap rate that is considered entirely safe.
Multifamily real estate offers many potential benefits, including higher cash flow, greater control over value, larger tenant pools, and scaling of your portfolio. Of course, these investments have benefits and drawbacks, just like any other investment opportunity, but the advantages often outweigh the disadvantages in many cases.
This is just a brief overview of multifamily investing. Contact us today to learn more about earning a multifamily real estate passive income. We are here to guide you in the process and teach you everything you need to know.