1. Scale Spreads out Risk
Unlike single family rentals where your occupancy is either 100% or 0%, apartments offer the ability to withstand the ups and downs of a market or economic climate.
If you invest $50,000 in one rental for example, you have one tenant that makes up 100% of your occupancy. Alternatively, if you invest that $50,000 in a 100-unit apartment syndication deal, where you are a part owner of a larger complex, now if one tenant leave, you are still 99% occupied.
As we all witnessed during the Covid-19 pandemic, there will always be situations that you cannot predict. As a real estate investor it is your job to mitigate risk however you can and insulate yourself from potential known and unknown risks that will inevitably present themselves.
#2 More Expensive, but Much Easier to Finance
In most cases, the cost to acquire an apartment building will be significantly higher than the cost to purchase a single-family home as an investment. A one-unit rental could cost an investor as little as a few thousand dollars, while the cost of a multi-family building can go well up in the millions.
At first glance, the single-family home seems like the no brainer for most investors, because most people don't have millions of dollars to invest into a large multifamily complex, but the truth is that A) you don't have to have all the money yourself and a multifamily property is actually easier to get financed than the average home is.
This is because a multifamily property is a business first. It has a history of operations and is most likely bringing in cash flow every month. This is still true even if the property has some vacancies as well, which banks like to see because it lowers their risk unlike a single home, which one can support one tenant.
As we pointed out in reason #1, by buying (or investing in) a bigger property, you can spread out your risk and remain profitable even if there are some unexpected vacancies that occur along the way. This equates to a lower risk investment for a lender and can also result in a more competitive interest rate for the property owner.
3. You can Create Mailbox Money
Most savvy investors look for ways to put their money to work so they can free themselves up to focus on what they value most in life. With inflation on the rise and the threat of higher taxes, it is even more important than ever to start planning for your financial future. Putting your money to work in an investment that works for you and offers tax benefits along the way is more crucial than ever.
The great thing about multifamily properties is that you can invest passively into them as a limited partner (LP) alongside an experienced team of general partners (GP) who will keep up with all the day to day operations and you can sit back and collect checks.
Depending on the property and business plan, these investments typically pay out distributions monthly or quarterly to their investors and limited partners get to share in the depreciation of the asset as well. This means your money will be working hard for you instead of you having to work hard for your money.
4. Growing a Portfolio Takes Less Time
Multifamily real estate is also ideal for investors who wish to build a relatively large portfolio of rental units. Acquiring a 200 unit apartment building is actually easier and much more time-efficient than purchasing 20 different single-family homes.
If you choose the single-family route, one would need to negotiate with 20 different sellers, conduct 20 different inspections, get 20 different loans and coordinate the management of 20 different properties that are each located at a different address.
All of this headache could be avoided by simply purchasing, or investing in one property with 200 units.
5. You Can Hire Property Management
When you have scale, you can afford to delegate different roles. If you are buying single-family rentals on your own, the margins are so razor thin that you are often forced to do everything yourself.
With a 200-unit complex like the example above, you can hire a property management company who will staff the property and is typically paid a percentage of the monthly income that a property generates. Their duties include finding and screening tenants, collecting rent payments, handling evictions, maintaining the property and being on site everyday.
The Bottom Line
There are many advantages to owning multi-family real estate. These include scale that spreads out your risk, access to easier and better financing opportunities, the opportunity for 100% passive income, the ability to quickly grow one's portfolio, and the luxury of hiring a property management company.
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