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When most people think about investing in multifamily properties, they think about apartment buildings. However, beyond that there is a wide world of investment opportunities for multifamily investors including duplexes, triplexes, townhouses and more.
Look at purchasing multifamily properties like buying a bundle deal or buying in bulk. With a single purchase you are getting multiple residential units with multiple opportunities to generate cash flow, instead of making multiple purchases to achieve the same number of doors. This allows you to quickly scale your real estate portfolio and increase your wealth significantly faster.
However, before we dive into the benefits of multifamily residential investments, click the link below to book a free strategy call with our team at LendCity to discuss financing options and more.
The Different Types of Multifamily Properties
A multifamily property is any property with more than one housing unit. This includes duplexes, triplexes, fourplexes, townhouses, homes with in-law suites, and any other property that can house multiple tenants in separate units.
Depending on the number of units a property has, it will typically fall into one of two categories: commercial or residential. Properties with more than four units are classified as a commercial property, while properties with four or fewer units are considered residential. This distinction is important as it will impact your financing options later.
The Advantages of Multifamily Investing
Multifamily properties can be incredibly versatile investments with plenty of advantages such as:
Expand Your Portfolio
One or two properties will allow you to make some money, but true financial freedom is going to take a bit more than that. Any experienced real estate investor knows that in order to build meaningful wealth, you need to build up your portfolio with multiple income streams. Fortunately, by purchasing multifamily properties, you speed up the process of building your portfolio dramatically. Instead of adding a single door to your portfolio, multifamily investments will add multiple units in a single purchase.
Increased Cash Flow
With multiple units, come multiple streams of cash flow. Instead of relying on a single tenant’s rent to cover your mortgage payments, insurance and maintenance costs while making you a worthwhile profit, multifamily units split your expenses across multiple incomes allowing you to see a larger return on your investment.
However, while these properties have more opportunities to generate cashflow, the expenses associated with them are often much larger, which must be taken into consideration when setting your rent. As well, there is always the risk of one or more units temporarily sitting unoccupied, which can impact your ability to generate cash flow.
With single family properties, if you have a vacancy, you lose 100% of the rental income from that property. On the other hand, multifamily properties run a much smaller risk of becoming fully vacant. One you occupy all of your units on a property, it is incredibly unlikely that they all will become vacant at once. This reduces the overall risk you face as an investor.
Many investors see multifamily properties as an opportunity to try “house hacking”. This is the process where you live in one of the units of your building while renting out the others to reduce your own monthly mortgage costs. For example, if you own a fourplex with a monthly mortgage cost of $2000, and you rent out three units for $750 while living in the fourth, you make $2250, completely covering your own mortgage and making an additional $250 which can go towards utilities, insurance or funding your life.
Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide
Finding the Ideal Multifamily Property
Much like any other property, you should know what it is you are looking for before shopping for a multifamily property. Some of the criteria you should consider are:
- Size: How many square feet is the property? How many units does it have?
- Location: Where is your property? Is it in high demand? What local amenities are there?
- Price: How much is the property listed for? How much are local properties going for?
- Profitability: What are your expenses? How much can you charge for rent? How much do you want to earn?
- Condition: Does the property need any updates or repairs? How much will those updates, and repairs cost you?
- Occupation: Is the property already tenanted? Would you prefer a vacant building or an occupied one to start?
After determining what you want out of a property, you can bring those details to your realtor and go shopping. Alternatively, if there is a particular building you want to buy that is not listed for sale, you can contact the owner and see if you can negotiate a sale off-market. Other means of finding odd-market deals include things like direct mail, networking with other investors or going through wholesaler.
Financing Multifamily Properties
When buying a multifamily property, there are a variety of ways you finance your purchase. Here are some of the most common methods.
- Conventional Mortgages
- Hard Money Loans
- Portfolio Loans
Additionally, there are plenty of unique ways to finance the purchase such as pursuing a joint venture deal with another investor. This way you can potentially invest significantly less, or even no money in exchange for sharing ownership of the property. This can be divided 50/50, 70/30 or whatever way you and your partner(s) decide. These deals can be done for both large and small properties and are great if you and another investor (or group of investors) do not have the time, money or experience to successfully purchase and manage the property alone.
To go over your options and find out what sort of financing works best for you, you can visit LendCity.ca or call 519-960-0370 to book a consultation or apply for financing. Alternatively, click the link below to book a free strategy call with our team.