Multifamily real estate is any residential property that contains two or more units under one roof where each unit has its own private living space. Common types of multifamily real estate include apartment buildings multiple units, duplexes, townhomes, and condominiums.
Investing in multifamily real estate can work well for any level of investor, whether new on the scene and looking to invest in commercial real estate but not sure where to start, or a more seasoned investor trying to diversify their real estate investment portfolio. Even through an economic down turn and a pandemic, the demand for rental housing continues to increase according to industry reports such as the National Association of Realtors Commercial Market Insights Report for November 2021. Our Q4 Real Estate company includes a rental property division with several luxury rental multifamily complexes. In our experience, rental and occupancy rates remained strong throughout the course of 2020 and 2021 and into 2022.
Aspects of multifamily real estate investing that appeal to all levels of investors include the ability to generate passive income. This is especially true if the investor outsources the property maintenance responsibilities by contracting with a property management company. Through the use of a property management company, the investor opens up more time to focus on their full-time job or other investment opportunities, as the property management company would handle a majority if not all of the daily responsibilities including rent collection, turning over units, and taking care of maintenance requests.
Another reason to consider investing in multifamily real estate versus commercial real estate or multiple single family rental properties, is that multifamily investing is less complicated. Additionally, multifamily real estate is a familiar concept as many people have either rented or owned some type of dwelling unit. Another attractive feature of multifamily real estate investing is the ability to start out on a smaller scale by investing in a duplex or fourplex unit, and then gradually expanding your portfolio into larger multifamily investment opportunities as your build more capital and gain more experience.
Reasons to Consider Investing in Multifamily Real Estate
The information listed below gives a snapshot of some of the rewards of investing in multifamily real estate. Keep in mind these potential benefits are dependent on location and type of multifamily property you buy.
Probably the most compelling reasons to invest in multifamily real estate is the probability of reliable cash flow through rental income paid by the tenants. This steady stream of income is necessary to offset the mortgage expenses with the added bonus of providing an extra income stream over time. The rental income will also help with housing expenses for the investor if they choose to live on site.
More Units Means More Tenants
When you invest in multifamily real estate, there are two or more units to work with so you can accept more tenants. This could result in a quicker return on your investment than you might receive on a single dwelling.
More Control Over Value
The value of the property is based on the amount of income the property generates. More units equals greater streams of income which generally leads to higher value than a single dwelling.
If the investor decides to live onsite and assume property management responsibilities, they will have greater oversight of property maintenance and repairs which also play a significant role in value.
By investing in multifamily property, the investor is likely to build their real estate portfolio quickly, even more so if they choose not to live onsite and collect additional rental income on that unit. It also opens the door to commercial real estate investing and increase cash flow potential when the property contains five or more units.
A variety of tax incentives go along with investing in multifamily real estate. There are several expenses that qualify as tax deductions including insurance premiums, utilities, maintenance, operation, and property management expenses and even advertising costs to attract tenants.
Long term tax benefits include real estate depreciation and cost-segregation associated with deterioration of the building and appliances due to the aging process. These apply even though the value of the property is increasing over time.
When making the decision to invest in multifamily real estate it is important to keep in mind that even though there are many benefits of investing in multifamily properties, as with any type of real estate investment, there are also associated risks. For this reason it is imperative a potential investor do their research and also consult with a knowledgeable real estate broker to help you identify the key characteristics that qualify the property as a good investment to based on individual circumstances. The real estate broker would also be able to provide information on property management options for the larger multifamily complexes.
When you are ready to invest in multifamily real estate, contact the experts at Q4 Commercial Real Estate to explore the opportunities that await you and assist you with the entire process. Contact Craig Buyers or Jason Rogers today at 319-294-3339.
To view available multifamily real estate and other commercial real estate properties in the Cedar Rapids/Iowa City Metro area visit our properties page here.
For more helpful information read all of our blog posts here. Start off with this blog post titled: An NNN Lease Versus a Gross Lease: What’s the difference?