4 Reasons to Invest in Multifamily Real Estate

Investing in real estate stands as a sturdy alternative for those seeking stability amidst the unpredictable swings of the stock market. It's an avenue that empowers investors to cultivate their wealth actively rather than entrusting funds to managed portfolios. The allure of real estate lies in its diverse range of investment strategies.

Some investors opt for revitalizing neglected properties, aiming to renovate and sell for profit. Others are drawn to multifamily properties for consistent rental income, encompassing various housing configurations like apartment buildings, condominiums, and multi-unit homes.

Among the many real estate investment options, multifamily properties shine brightly due to their potential for generating passive rental income. Beyond this obvious advantage, these properties offer easier financing avenues, fewer logistical challenges and complexities, and the possibility of efficient oversight through professional property management services. As discussed below, these benefits make multifamily real estate an enticing avenue for investors to diversify their portfolios and secure stable, long-term returns.

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What are multifamily properties?

First, what are multifamily properties? Investing in multifamily properties is an excellent way for individuals seeking supplemental monthly income and long-term appreciation of property values. Residential real estate offers two primary categories for investment: single-family and multifamily properties.

Single-family properties comprise residential buildings featuring a solitary rentable unit. On the other hand, multifamily properties encompass multiple rentable spaces, presenting diverse options in terms of configurations and types:

• Apartment buildings and complexes
• Condo complexes
• Mixed-use properties blending residential and commercial units
• Low-income housing
• Retirement homes
• Duplexes and triplexes

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Now, let’s dive into four reasons to consider investing in multifamily real estate.

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1. They’re easier than ever to finance

Fannie Mae's recent policy revision (as of November 18, 2023) is a game-changer for prospective investors eyeing multifamily homes. By slashing down payment requirements to just 5% for owner-occupied 2-, 3-, and 4-unit properties, this shift unlocks a lucrative avenue for investment. Previously, the need for 15-25% hefty down payments acted as a barrier for many aspiring landlord-owners.

This significant alteration in financing opens doors for individuals to co-buy multifamily real estate while reaping the rewards of homeownership. The reduced down payment requirement facilitates easier access to these properties and amplifies the potential for generating substantial returns on investment.

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2. Fewer logistical challenges and complexities

Investing in multifamily real estate offers a streamlined path for portfolio expansion, particularly for those aiming to amass a significant number of rental units. Acquiring a 20-unit apartment building is much more efficient and less time-consuming than purchasing 20 separate single-family homes.

Opting for individual homes necessitates engaging with 20 different sellers, conducting inspections across disparate locations, and potentially managing 20 separate loans for each property. This fragmented approach often results in increased logistical challenges and administrative complexities.

On the other hand, investing in one property encompassing 20 units streamlines the process, allowing investors to consolidate efforts, streamline negotiations, and manage a sizable rental portfolio more efficiently. This centralized approach reduces logistical hurdles and minimizes the complexities associated with multiple transactions, providing a more convenient and strategic path toward portfolio growth in real estate investment.

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3. Less risky investment

Investing in multifamily properties stands out because you can maintain robust cash flow even during occasional tenant delays or vacancies. In a 10-unit property, a single vacancy translates to just 10% unoccupied space. But in the case of a single-family home, when a tenant leaves, the property becomes 100% vacant until a new tenant is secured.

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This fundamental difference significantly lowers risk exposure for lenders, making multifamily properties a less risky investment proposition. This reduced risk profile often leads to more favorable interest rates for property owners, enhancing the property's overall financial viability and attractiveness as a sound investment opportunity.

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4. You’re able to use a property management service
   Owning a multifamily property offers a distinct advantage over single-family homes regarding the feasibility of property management. For real estate investors who prefer not to handle the day-to-day operations of their properties—dealing with diverse tenant personalities, rent collection, maintenance, and bill payments—a property management company becomes an attractive solution.

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Property managers typically charge a percentage of the monthly income generated by a property. Their responsibilities encompass: 

• Tenant screening
• Rent collection
• Property maintenance
• Overseeing repairs
• Managing expenses
• Handling regulatory compliance
• Eviction procedures

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Due to the limited income from these properties, engaging a property management service might not be financially viable for investors with one or two single-family homes. However, multifamily properties generate more substantial monthly income, affording their owners the flexibility to utilize property management services without significantly impacting their profit margins. The higher revenue stream from multifamily properties makes employing professional property management a financially sensible option, offering efficient management while preserving the property owner's profitability.

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There are many advantages to owning multifamily real estate, and recently Fannie Mae made it easier than ever. Now is the perfect time to explore co-buying a multifamily property—a stable alternative in even unpredictable times.