Multifamily Investing 101: How To Buy Multifamily Homes


Thinking of buying a multifamily home or investing in multifamily units? You’re not alone, and at Realty Exchange we have expert agents that are ready to help you! Reasons that prospective multifamily homeowners may be wondering how to buy a multifamily property are numerous. They may want to learn how to increase revenue potential, master strategies to reduce vacancy rates, or try house hacking to add new income streams. Let us help you take a closer look at how multifamily real estate investing works, how you can set about buying a multifamily home with a Realty Exchange agent, and what to know as you add to your investment portfolio. We’ll also walk you through several of the best reasons to consider investing in a multifamily home.

Investing In Multifamily Properties Vs. Single-Family Properties

Multifamily investing differs from investing in single -family residence (which we can also help you with!). This is because it requires you to purchase and maintain properties that include multiple spaces for rent. But while investing in multifamily properties (and their multiple rental units) often comes with added time, expense, and overhead, it also holds the potential to boost your monthly income. This type of investment offers consistent appreciation in value and significantly reduces your investment risk. Investing in residencial real estate properties such as duplexes, apartment buildings, and condo buildings can often come with larger upfront and back-end costs. Property management needs also increase significantly when making the leap from single-family to multifamily housing. At the same time, because multifamily properties offer multiple rental units to rent out (and the promise of multiple streams of revenue), they can also generate several multiples’ worth of additional income in the end. Likewise, having the ability to rent out several units versus a single unit also provides real estate investors with multiple opportunities to reduce vacancy rate, allay their expenses and offset general risk.

4 Reasons Why Multifamily Investing May Be Right For You

Real estate investing is a major part of many investment portfolios, especially those maintained by accredited investors. Of the many types of asset classes that you can hold, multifamily properties are one of the most popular, given their ability to generate somewhat predictable and routine net operating income. In effect, because condo buildings, apartment complexes, duplexes and other multifamily properties offer the option to rent out multiple rental properties and accrue added appreciation in value over time, there’s much upside to be recognized from successful multifamily investing activities. Ultimately, there are many reasons that you may wish to buy a multifamily home. But it’s also important to note that the choice to do so requires you to make additional commitments in terms of management, upkeep and finances as well. Be sure to think through your options as you go about considering if multifamily investing is right for your real estate investment portfolio. The following four reasons to engage in the practice may offer helpful food for thought as you begin weighing your options. If you are not sure whether this is the right investment opportunity for you, one of our agents would be happy to sit down with you to discuss all of your options and make sure you truly understand the multifamily investment business.

1. You Want To Expand Your Portfolio

Real estate investing (like any form of investing) is not only rooted in picking smart investments, but also investing in well-diversified holdings as a hedge against future uncertainty and risk. That means exploring a variety of property investment options beyond single-family rental units alone. As a rule of thumb, expanding your real estate investment portfolio is key to success if real estate investing is your passion. Note that investing is generally active or passive in nature – and that purchasing a multifamily property is a form of active investing. In other words, if you’re wondering how to buy a multifamily property, you also need to know that doing so will require you to be responsible for overseeing and managing the property to boot. However, you can also hire a property management company to handle these needs if you need to outsource day-to-day tasks and upkeep. BEWARE! Not all property management companies are the same, and you definitely want to do some research before picking one. (See next months blog for further details) Of course, as an active investment practice, multifamily investing also requires you to be responsible for maintaining the premises for current tenants and acquiring new ones. You’ll be responsible for paying property tax costs on the building as well. But here’s the upside: You may stand to gain a far better return on real estate investment (ROI) when you purchase a multifamily property compared to the level of return that you might hope to get from other passive forms of investing. In fact, many real estate investment pros have made quite the career (and fortune) out of purchasing and operating multifamily rental units.

2. You Want To Generate Additional Income

Buying a multifamily property might be the right move for you if you’re looking for a manageable way to increase your recurring revenues and significantly boost your net operating income (NOI). That’s because apartment complexes, duplexes, condo buildings and other multifamily properties offer a greater number of rental units that you can bring to market. Likewise, over time, these real estate properties hold the potential to grow significantly in value, providing an added windfall if you elect to sell them. Gains made here can outpace those made on single-family homes by several orders of magnitude. That said, it’s important to understand property values and residential trends pertaining to the area you’re interested in purchasing a property in as you work to determine how much profit that you stand to gain before acquiring a new holding.

3. The Timing Is Right

Sometimes a great real estate investment might fall into your lap even if you’ve never really considered how to buy a multifamily property, or the prospect of being a landlord to multiple tenant. Let’s say you’ve discovered a multifamily property that’s being offered for an affordable price that you think could bring you sizable income and add significantly to your real estate investment portfolio. If you think that the opportunity is too good to pass up, you’ll want to do some analysis surrounding the property, as well as cap rates, vacancy rates and local property market trends. None of that make any sense to you? That's ok, our highly experienced multifamily investment specialists can find out all of that information for you! In addition, it’s also important to run your idea by a knowledgeable agent, investor and financial advisor – they’ll be able to review the real estate benefits and your financial situation to help you make an educated decision here.

4. You Want To Reduce Living Costs

Many landlords who own smaller multifamily properties as a form of real estate investment (like two to four-unit properties) don’t just hope to generate additional monthly income either. Rather, they also aim to cut back significantly on rental or mortgage costs for their own home. You can follow in their footsteps – and enjoy equally large cost savings and amounts of money put back in your pocket – by moving into one of your units and using your additional rental income to defer costs and earn a profit here. This real estate investment strategy, which essentially leverages the income from other rental units to help pay for your own, can prove quite lucrative if you can find an affordable property in a neighborhood you like. At Realty Exchange, we work for you and we understand how hard you have worked for your money; however, let us help your money start working for you! We will be the investment experts, so you don't have to be.