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Should You Buy a Multi-Family Property?

Posted on Friday, November 18, 2016

If you've decided to become a real estate investor and have spent time browsing real estate websites, you probably know that there are many different types of properties on the market. One of the first choices that you will need to make is whether you want to invest in a multi-family property or single-family homes. Here is some information about the benefits of buying multi-family properties, some potential downsides, and tips for making the right investment choice.

There are several benefits to investing in a multi-family property.

Pros of Buying a Multi-Family Property

A multi-family property is an excellent investment if you want to scale your holdings quickly. For example, if your goal is to hold a dozen units in the next few years, the legwork, mortgages, and closing costs associated with separate single-family home purchases wouldn't make sense. With multi-family properties, you can buy many units at one time and, provided they are in the same location, they are easier to manage than a spread out portfolio of single-family homes.

It's often simpler to find some good deals with multi-family properties because they are valued differently than single-family homes. Commercial property is often valued based on income generation. If an apartment building has been poorly managed in the past, this could dilute its value and bring you a better price. Also, because you'll have more units producing income, you can quickly raise the value of that property once you are the owner and operator.

Potential Downsides to Multi-Family Properties

If you're interested in multi-family properties as an investment, your options might be limited. In fact, according to the National Multifamily Housing Council, just 37% of U.S. households are rentals, and 61% of those are multi-family units, so you'll need to look around. Search on real estate websites, and you'll discover that not all neighborhoods have small apartment buildings, triplexes, or quads. If you live a rural area, your choices might be even more limited. These sorts of properties are more prevalent in urban and downtown locations where the population density is higher.

In general, a multi-family property is going to cost you more than a single-family home. If you're under a tight budget starting out, this could be beyond your reach. Also, the financing on most multi-family homes is more complex than on a conventional home. Finally, management of these properties isn't for the faint of heart. You'll either need to commit some of your own time to this task or hire a property management company to handle it.

Understand the pros and cons so that you make the right investment choice.

What is the Right Choice for You?

Choosing whether or not to invest in a multi-family property is a matter of personal preference and budget. If you are willing to devote the time and resources required to the property, the investment can be profitable. Some people even choose to live on site to combine their own living costs with their investment. While financing medium to large-sized multi-family properties can be complicated, many aren't aware that they can purchase a small multi-family unit (up to 4 units) with an FHA loan if they live in the building.

Multifamily properties can be excellent investment opportunities but they may not be right for everyone. Search on real estate websites to determine the options in your area, and go here to subscribe for new home alerts.

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