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 still allow you to acquire a building with a residential mortgage, taking advantage of the lower interest rates. Here are some good reasons why investing in a multi-family building may be less risky than other types of housing.
The first is competition. More and more investors will come after these single family homes. This can drive up the price of these homes to such an extent that they won’t allow you any cash flow. Don’t rely on appreciation to create cash flow. You need your properties to have positive cash flow right out the door. If you are considering owning, you might as well buy 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 moves out of town, you need to cover the entire mortgage payment until you re-rent it. With a multi-family, it would be very unlikely that all of your units would be unoccupied at the same time, which would give you a little cushion. If you have a four-unit building, leaving a tenant may not even put you in a negative cash flow situation! It could make all the difference in the world for your annual profit.
Multi-family units earn you more money per month. Depending on your market, duplex or triplex properties can be about the same price as a single family home. However, you can get more rent from 2 units than a single unit. So you will get more money per month for about the same mortgage payment. Which means more positive cash flow – the most important aspect of real estate investing!
Repair costs per unit are on average 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 decreases the unit cost. The same goes for maintenance, it’s less travel time to switch from one unit to another, which maximizes labor costs.
As you grow your real estate portfolio, the increased cash flow provided to you by your multi-family units will allow you to be able to afford a property management company if you wish. This will save you time to find other offers or do whatever you want!
So don’t get stuck in the mindset that real estate investing is only about single family homes. Savvy investors will have a portfolio that includes a mix of single-family and multi-family properties. Just work the numbers and you may find that the multifamily investment pays off for you!
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