Is Multi-family for You?

There are so many ways to invest in real estate, and diverse property types from which to choose. The greatest number of new investors start with single family homes, as they are more easily located, offer lower individual prices, and in general are easier for the new investor to understand and manage.

At some point, success leads many investors to consider other property types, especially commercial and multi-family properties. Of course, the lure of multi-family property investment includes advantages such as:

● Economy of scale for maintenance, management and services, with more units in one location or under one roof.
● Usually a lower price per unit.
● One set of paperwork and accounting efficiencies with a single property containing multiple units.
● Vacancies do not reduce rents by 100% as in single family. Other units lessen the impact of a single vacancy.

There are risks if you only consider these positive aspects, and there are some negative factors in multi-family property investment.

● Tenant turnover is higher, and vacancies higher with these properties. It’s not the same feeling for a tenant in an apartment versus a single family rental home. Tenancies in single family homes are longer than in apartments.
● You can suffer from a lower quality tenant, as many rent apartments because they can’t afford to rent a single family home. They don’t take as much care and there can be higher maintenance costs. There can also be higher losses to non-payment of rent.
● When it’s time to sell, your buyer market is limited. Unlike a single family home that can be sold at retail or to another small investor, a multi-family property requires a very different type of buyer, and there are far fewer of those.

Before making the leap, consider that the value of the deal is the most important factor. You don’t want to overlook some really amazing single family deals that could end up in aggregate to be more profitable than that apartment project.