There are many ways to get started in real estate investing. For the beginner, a good strategy might be to purchase a multi family unit to rent out. Four families or less per building is the ideal size to look for. This will allow you to still acquire a building with a residential mortgage, taking advantage of the lower interest rates. Here are some great reasons why investing in a multi family building can be less risky than other types of housing.
First is competition. There are going to be more investors going after those single family houses. This can drive the price of those houses up to a point where they will not cash flow for you. Do not depend on appreciation to create cash flow. You need your properties to be cash flow positive right out of the gate. If you are considering being a landlord, you might as well purchase a unit that has more than one tenant option.
Then there is the fact that you have more than one unit to rent out. If you purchase a single family house and the tenant skips town, you have to cover the entire mortgage payment until you get it re-rented. With a multi family, it would be highly unlikely that all of your units would be unoccupied all at once, giving you a bit of a cushion.
If you have a four unit building, having one tenant gone may not even put you in negative cash flow! This could make all the difference in the world for your yearly profit.
Multi family units bring you more money per month. Depending on your market, duplex or triplex properties can be around the same price as a single family house. However, you can get more rent from 2 units than a single unit. So, you will be getting more money per month for approximately the same mortgage payment. Which means more positive cash flow – the most important aspect of real estate investing!
Repair costs per unit average out to be less. If you have 3 single family homes and need to replace the roof on each one, that is a lot of money per unit. However, if you have a triplex that needs a new roof, you are in effect replacing 3 roofs in one, making the cost per unit decrease. Same thing goes for maintenance, it’s less travel time to go from unit to unit, maximizing labor costs.
As you grow your real estate portfolio, the increased cash flow given to you from your multi family units will allow you to be able to afford a property management company if you want. This will free up your time to find other deals, or do whatever you want!
So, don’t get stuck in the mindset that real estate investing only involves single family homes. Smart investors will have a portfolio that includes a mix of single and multi family properties. Just work the numbers and you may find multi family investing to be profitable for you!
By Martin Fisher