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INVESTING 101 EDUCATION

7 Advantages of Multifamily Over Single Family Rentals

If you’re looking to scale up your real estate investment portfolio, you might want to take a look at multifamily properties. Single-family rentals can be very lucrative, but in today’s market, it’s harder than ever to find cash flowing single-family rentals. Apart from that reason, multifamily rentals offer several advantages over single-family rentals that are hard to pass up. For clarification, multifamily rentals could be duplexes, triplexes, four-plexes, apartment buildings, townhouses, and mixed-use buildings.

Easier to Fund

Lenders for multifamily properties are often easier to deal with than lenders for single-family rentals. Five units and up multifamily properties qualify for commercial lending. Four units and less qualify as residential lending. There are several types of financing for multifamily rentals:

  • Conventional Loan – suitable for up to four units in good condition
  • Government Backed Loan – suitable for owner-occupant properties with 2-4 units or investor property with five or more units
  • Portfolio Loan – suitable for multiple purchases at once
  • Short-Term Loan – suitable for fixers/flippers buying a distressed property

Easier to Manage

It’s easier to manage eight units in one multifamily building than it is to manage eight single-family homes spread out over the country or even over the state or city. The logistics of keeping track of multiple properties is just a lot more. Every property will have its own unique set of conditions. You need to keep track of the appliances in each property, any warranties, any ongoing issues, how old the systems are, when the systems need to be a maintenance, etc. It’s simply a ton of more work to manage multiple single-family homes than it is to manage one multifamily property.

With a multifamily property, you have one set of things to manage. You have one HVAC system, one roof, one landscape, one common area, etc. You have one address that you (or your property managers) ever have to travel to. The simplicity goes all the way down to the paperwork. You have one lease template; all you have to do is change the unit number and the dates for each new tenant in the multifamily property.

Easier to Cash Flow

It’s much easier to cash flow a multifamily property than it is to find a single family rental today that cash flows. With a single family rental, you’ll have a month in between leases when the property has to be cleaned and readied for the next tenant. During that month, you won’t get cash flow. You’ll have expense that month, but no rental income.

With a multifamily rental, you can have vacancies and still enjoy the cash flow. You still have other tenants paying the rent. You’ll likely never have a fully-vacant multifamily property. You’ll always have some money coming in. Even if you want to take one unit after a tenant vacates and spend a month completely rehabbing it, you’ll have income streaming in from the property.

More Revenue Streams

When you have tenants living in your multifamily rental, you have the opportunity to make more revenue stream in addition to rental income. You can place coin-operated washers and dryers in the property and snack vending machines. You can build a simple carport or garage and offer tenants covered parking for an extra charge every month. You can offer storage units on-site for an additional fee. There are more ways to add revenue streams, too, like charging a non-refundable pet deposit, charging for pest control and offering coin-operated bicycle racks.

Lower Maintenance Costs

If you do find that you need to replace or restore the roof or have the building painted on a multifamily unit, the cost will be a lot less than if you had to do the same on a dozen single-family homes. Even caring for the lawn will be less expensive. Many landlords include lawn maintenance with single-family home rentals to ensure that the lawn is kept up to neighborhood standards. That’s more money out of your pocket. With a multifamily rental, you’ll have only one lawn to fertilize, mow,  weed and buy gas for the lawnmower instead of potentially dealing with a dozen lawns to maintain.

One Exit Strategy

If time and need necessitate you recouping your investment, you’ll have just one exit strategy to deal with when you own a multifamily rental. If you have a dozen single-family homes, that’s 12 properties you have to market and sell in order to liquidate your holdings. Yes, it’s harder to sell multifamily than a single family home, but when you need to get cash, it’s better to deal with one sale than be burdened with trying to sell 12 individual properties.

Improvements Affect More

Another way to put this is a higher ROI or return on investment. When you make an improvement to your multifamily building by, for example, replacing the roof, your investment and effort affect the value of a lot more valuable property. Every unit in the building benefits from that roof. When you replace a roof on a single family home, only that one unit is affected. Your ROI is exponentially higher with multifamily than with a single family rental.

If you’re ready to scale up, you might want to consider getting into multifamily rental properties at some point. Although they’re more expensive to operate in every way, they offer a lot of advantages to experienced investors.

If you’re not quite ready to get into multifamily rentals personally, but you like the idea of getting into commercial real estate, you might like the private money lending model. This is something that American Real Estate Investments offers accredited investors. Through private lending, you can be in the commercial real estate business with low risk and high returns with affordable entry levels. Contact us to learn more about our current opportunities in the private money lending sector.