A multifamily property refers to a type of real estate that allows two or multiple households to live in the property. Contrasting single-family units, multifamily properties can vary from small apartments with just a few units to high-rise huge estates with hundreds of units. Some of the widely found multifamily properties include duplexes, triplexes, apartments, townhouses, condominiums, etc. According to Kanat Sultanbekov, the leading reasons behind the growing demand for multifamily homes are shifts in demographics, lifestyle preferences, and affordability. The article focuses on the pros and cons of investing in multifamily property:
Pros of Multifamily Property Investing
Cash Flow: One of the primary benefits that tempt investors to multiply their portfolio by investing in multifamily properties lies in its high potential to generate cash flow. Since these properties accommodate multiple tenants, if any one or two units remain vacant, they will still find steady cash flow toward rent from other households.
Tax Benefits: Another appealing advantage of investing in multifamily property real estate is that it offers multiple exemptions on tax obligations. The tax benefits are allowed on mortgage interest, property management fees, maintenance, repairs, and operational costs, and also on marketing expenses.
Passive Income: Investing in multifamily real estate is also a fantastic way to generate a consistent stream of passive income. Without any active participation, simply by hiring a proficient property manager, investors can continue earning passive income while focusing on other businesses or remain occupied in the active profession.
Easy To Finance: Due to the assured cash flow from multifamily properties, lenders like banks prefer financing them says, Kanat Sultanbekov. The risk of foreclosure on family-family apartments is fairly lower as opposed to single-family rental properties. This is the reason why lending institutions are more likely to offer more competitive interest rates to investors in these properties.
Cons of Investing in Multifamily Property
A Highly Expensive Project: The cost of buying a multifamily property will be considerably higher compared to the cost of acquiring a single-family rental home. Although depending on the city, location, and size of the property its features the price varies, however, to fetch a considerable cash flow, drive tenants to the property and retain them for a long time, investing in high-quality, well-located property is the right choice.
High Competition: With so many benefits associated with multifamily properties, the market is intensely competitive and packed with experienced wealthy investors. Many of these investors have the ability to buy the property on cash and bargain for a lower price, tempt the seller, and close the deal on the spot may agree to waive all contingencies associated with the purchase agreement such as financing or inspection contingencies. This makes the market tough for small investors to get an entry. However, partnering with an experienced investor can pave the way to get started and gradually multiply.
Higher Maintenance Costs: Due to the nature and structure of the multifamily business, investors should be prepared to incur higher maintenance, renovation, and repair costs.
Tougher To Manage: Dealing with multiple tenants can seem overwhelming and also a time-consuming task. This is why working in conjunction with a property manager makes sense.
Having a detailed insight into the pros and cons of investing in multifamily property can be of immense help for investors to make objective decision making.
