Real Estate Investors Are Attracted to Multifamily Properties Like Bees on Honey
If you haven’t already heard, multifamily properties are the current hot commodity in the real estate investment market. Not only are there a wide variety of buildings available in most markets due to depressed ownership demand in recent years, they are more cost-effective to maintain and therefore more profitable than the average single-family dwelling. Maybe that’s why investors have been piling on to opportunities to buy multifamily real estate.
The numbers aren’t hard to figure out. If an investment property only costs three or four times what one would spend on a rental house, but it delivers six or even ten times as much rental income due to the larger number of units available to rent, then it’s easy to understand how much more lucrative the investment will be. That’s why so many investors are interested—once they have enough income for single-family homes, the next logical step is to increase the return on one’s real estate investment portfolio by moving up to multi-family dwellings. The larger cost creates a smaller pool of competition, too, so the field is not as crowded with other investors.
One large contributing factor to the popularity of multifamily real estate is the way it is valued and financed. When purchasing single-family homes, you can generally expect the valuation to be based on its market resale value. When looking at properties with five or more units, though, the primary factor in the valuation is its income. The LTV for a lot of multifamily properties is built around that, as is the down payment value. In some cases, this can make properties more expensive than they otherwise would be, but it also means you have tremendous opportunities to buy and rehabilitate apartments that are not currently financially viable.
Renovating an investment to massively increase its income is a great way to make money, and a lot of people have been doing it with single-family homes for both resale and rental holdings. With multi-family properties, the best ROI comes from holding the property after renovation. In fact, if you increase its income enough, you might even be able to perform a cash-out refinance to get the down payment for your next investment, which lets you minimize your risks.
Multifamily real estate isn’t heating up, it’s already hot. If you’ve got the financial reach to broaden your property investments, it’s time to get into this market before it’s crowded enough to make deals hard to find.