Multifamily properties have become hot commodities for several reasons. For one, investors are realizing that multiplexes offer reliable income. They are popular with tenants, and the price per unit is less costly than single-family homes. When an investor knows his or her target audience and is willing to creatively market to it, he or she can wind up with a very profitable property.
Location, Location, Location
As with all real estate investments, location is a major consideration when purchasing multiplexes. Investors must thoroughly research an area before buying property. The most profitable apartment complexes, duplexes, and triplexes are located near public transportation. With single-family rentals, access to buses and trains is not as crucial of a factor; however, tenants in multiplexes are more likely to rely on public transportation to get around. The most favorable properties are in walkable locations, as well, for easy access to restaurants, shopping, and other amenities.
Because the loan process to purchase a multi-unit dwelling is different from that of a single-family home, investors must learn the ins and outs of commercial real estate financing. Finance regulations vary from state to state, but some general rules of thumb include:
- Instead of loan approval being based on a buyer’s credit and income, as with single-family homes, approval is based on a property’s profitability.
- In some states, regulations are in place to favor multiplex investors, making it easier to obtain financing.
- Loan limits are set higher for multiplexes than single dwellings.
Due to the increased demand for apartments, duplexes, and triplexes, construction has shown substantial growth. The multi-residential building spike is attributed to several factors. For one, young urban professionals want to live closer to the hub of a city. Millennials, who are 34-years old and younger, are opting to rent instead of buy. Also, younger baby boomers are renting more often than buying, unlike their wealthier parents, so are choosing multiplexes as their homes.
Young first-time investors are buying multi-residential properties more than single units. This is due to a variety of reasons, including availability and profitability. Many single-house investment properties have been scooped up, but for the creative and resourceful young investors, there are multiplexes available that make excellent first investments. Paydays are larger when a complex is sold, too, because the appreciation on a higher-dollar multiplex adds up more quickly than on a less expensive single dwelling.
Cash Flow Benefits
Since multi-unit housing has multiple tenants paying rent, there is better cash flow. When one tenant moves out, there are still other residents paying their rents. With a single-family rental, the loss of a tenant means the complete loss of rental income on that property until another resident moves in. Maintenance costs are reduced with multiplexes, as well, because there is only one lawn to mow, one roof to fix, and all tenants are located near each other. Because of the increased cash flow, many investors are able to afford property managers to handle maintenance tasks.
There is an upswing in investors putting their money into multi-resident properties because they’ve proven to be a great investment option. There are many benefits and few drawbacks to this great investment option.