by Cypress Ventures Group
In the next few posts, we’re going to give you the basics of how you can build long term wealth using real estate. We thought about taking a deep dive but so many of you are too busy in your day-to-day “stuff” to take a coarse in apartment investing, so we’re going to hit the highlights to help you understand how it all works with a few easy to read articles. This is the first of these articles.
The beginners guide to get started in multifamily real estate.
Unlike single-family real estate investing, multifamily real estate could provide you with an opportunity to create multiple revenue streams. That’s because you’re likely to have more tenants paying rent and covering more than just the cost of your property mortgage. These streams of income are generated 24/7, 365 days a year.
To get started in commercial multifamily real estate, you’ll need to be adept at managing tenants and property, be financially secure, and be able to get a loan on the property you want to buy.
Costs for this type of real estate add up fast, so make sure the income on your target property will meet and exceed the expenses as well as calculating in your time to make it profitable.
In our upcoming emails and posts, we will show you how to run the numbers to help you decide if this type of passive income is right for you.
Multifamily Investing: What is it?
Multifamily is simply residential property that houses more than one family. Think apartment complexes, large subdivided homes, duplexes, 3 and 4 unit homes, townhome and condo complexes.
Multifamily/Commercial vs. Single-family Homes
Multifamily / Commercial real estate lets you rent multiple units and reduce your vacancy risk. It’s likely you’ll have higher income but you’ll have to account for the increased maintenance and administrative costs of managing multiple tenants.
> Compare this to residential (1-4 units) property investing. This type of investment property can be less time-intensive when it comes to management. This could be as simple as buying a house or duplex and looking for tenants or moving to a new home and keeping your old house to rent.
Either way, the person living in your former property or a newly purchased property is not you – but the new tenant should be paying enough rent to cover the monthly mortgage, taxes, insurance, ongoing maintenance and management costs. The risk for you is vacancy. The risk with single-family rentals will be higher since you won’t have additional units to make up for the lost revenue if you can’t find another tenant to move in quickly.
Multifamily Investing – Pros and Cons Summary
Pros of multifamily real estate investing:
-
- Increased, scalable cash flow from many tenants in one property.
- Lower vacancy risk (if one unit is empty, others are occupied).
- Live in one unit – use the tenant income to cover your costs.
- Enough cash flow could enable you to hire a property manager to take over day-to-day operations.
Cons of multifamily real estate investing
-
- Most often, you’ll need more capital to buy multifamily vs. singles, duplexes, triplex, quadplex buildings.
- Increased maintenance / upkeep required to manage multiple tenants.
- Property appreciation is often less compared to single-family real estate – but cash flow is higher.
- Multifamily/Commercial loans are qualified differently than 1-4 unit loans.
- Lenders require previous Multifamily/Commercial experience before approving your loan.
How to invest in multifamily real estate
Getting your start in multifamily investing may be challenging, like building any type of residual income / cash flow investment. If you believe real estate should be part of your long-term retirement plan, please email us.
Our next article will talk about how multifamily real-estate is valued. We will explain net operating income (NOI), capitalization rate (Cap Rate) and how these two factors actually determine if an apartment building is a good value and worth investing your hard-earned money.
Please feel free to schedule some time with us to explore if being a passive investor in the apartment sector is right for you. You can schedule using this Calendly link.
If you have friends who are interested in these articles, please pass this page and our contact info. Just right-click and copy this link. To sign up to get occasional emails from Cypress Ventures Group, please contact us here.
Want to invest with your IRA? See more about Self-Directed IRAs on Investopia SDIRA.
See our post on SDIRAs to learn more.