Real estate can be an excellent alternative for people unable to handle the stock market's volatility. It is also a fantastic investment for people who hope to take a more active role in capital growth instead of passively allowing their money to be managed by someone else while placed inside a fund. One beautiful feature of real estate investing is more than one successful strategy is available.
Investing in rental property is a great investment strategy for people who need an additional monthly income source along with a steady and slow portfolio value appreciation. There are two property types people can invest in for residential real estate, multifamily and single-family. As implied by the name, single-family investments are residential buildings with only one available unit for rental. On the other hand, multifamily properties, also known as apartment complexes, have multiple rentable spaces. While there are fewer entry barriers to building a small home portfolio, there are many advantages to sizeable residential complex investments. Our experts on multifamily real estate passive income offer these reasons to consider this prime investment opportunity instead of investing in single-unit rental properties.
In nearly every case, purchasing an apartment building will be significantly more expensive than the cost of buying a single-family home for investment. For example, a single rental unit may cost an investor as low as $30,000, while multifamily properties can cost well into millions. Most people assume that getting a loan for a single-family property would be easier than acquiring the money for a million-dollar complex. Yet, surprisingly a multifamily property is more likely to receive bank approval for a loan than an average home. This is because there is a consistent cash flow generation monthly from multifamily real estate.
Even when a property has a couple of late tenants or a handful of vacancies, it still typically generates a large cash flow. On the other hand, when a tenant moves out, a property becomes completely vacant with a single-family home. In the same respect, a 10-unit property with one vacancy is only unoccupied at 10%. As a result, the likelihood of foreclosure on a single-family rental is higher than that of an apartment building. These facts equal a much less risky investment for a bank or lending institution and can often result in a property owner getting a more competitive interest rate.
Property investors focused on building more extensive portfolios of rental units may find multifamily real estate suitable. For example, it is much more time-efficient and easy to acquire a 20 unit apartment building than purchasing 20 individual single-family houses. Buying 20 single-family units would require an investor to work with up to 20 different sellers, get 20 house inspections, and open 20 separate loans for every property they purchase. You can avoid this headache by buying a multifamily unit with 20 different spaces.
Some real estate investors prefer not to personally manage their properties and hire a property management company instead to handle their rental's day-to-day operations. Property managers typically make a percentage of the monthly income generated by a property. Their duties often include screening and finding tenants, collecting payments for rent, maintaining the property, and handling evictions. Most investors who own single-family properties do not have the option of hiring a property manager because it would not be a financially viable prospect due to the size of their portfolio. However, the cash flow produced by multifamily properties every month allows an owner the opportunity to hire a property management service without having to reduce their profit margin significantly.
Real estate investments allow an investor to find success through multiple investment strategies, much like stocks. Owning a collection of rental property is one of the most common ways of investing in real estate. Single-family properties typically only have one rental unit available, while multifamily properties generally are apartment complexes with numerous rental units. Multifamily real estate offers many advantages, including access to better and more accessible opportunities for financing, the ability to grow a multifamily real estate passive income quickly, and the chance to hire property management services.