Invest in multi-family properties
There are many ways to get started in real estate investing. For the beginner, a good strategy might be to buy a multi-family unit for rent. Four families or less per building is the ideal size to look for. This will allow you to continue acquiring a building with a residential mortgage, taking advantage of the lower interest rates. Here are some great reasons why investing in a multi-family building can be less risky than other types of housing.
First is the competition. There will be more investors looking for those single family homes. This can drive the price of those homes to a point where they won’t generate cash flow for you. Don’t rely on appreciation to create cash flow. You need your properties to have positive cash flow right from the start. If you are considering owning, you can also purchase a unit that has more than one tenant option.
Then there is the fact that you have more than one unit to rent. If you buy a single-family home and the tenant leaves town, you must make the full mortgage payment until you rent it again. With a multiple family, it would be highly unlikely that all of your units would all be unoccupied at once, which gives you a bit of protection. If you have a four-unit building, the fact that a tenant has left may not even put you in negative cash flow. This could make the difference in the world to your annual earnings.
Multi-family units bring you more money per month. Depending on your market, duplex or triplex properties can be the same price as a single-family home. However, you can get more rent from 2 units than from a single unit. Therefore, you will get more money per month for roughly the same mortgage payment. Which means more positive cash flow, the most important aspect of real estate investing!
Average unit repair costs are lower. If you have 3 single family homes and you need to replace the roof on each one, that’s a lot of money per unit. However, if you have a triplex that needs a new roof, you are actually replacing 3 roofs in one, which brings the cost per unit down. The same goes for maintenance, it is less travel time to go from one unit to another, which maximizes labor costs.
As your real estate portfolio grows, the increased cash flow your multifamily units bring you will allow you to be able to afford a property management company if you wish. This will give you free time to find other offers or do whatever you want!
So, don’t get stuck in the mindset that real estate investing only involves single-family homes. Smart investors will have a portfolio that includes a mix of single-family and multi-family properties. Just work with the numbers and you may find that multi-family investing is profitable for you!