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The Pros and Cons of Investing in Multi-Family Properties

Are you wondering if investing in multi-family properties is right for you? It’s a big decision, and like all important decisions, it comes with some pros and cons.

Multi-family properties include everything from apartment buildings to duplexes, and they present additional challenges and benefits that single-family homes don’t.

Let’s take a look at the most significant upsides and downsides to investing in multi-family properties so you can decide if multi-family investing is right for you.

Pros of Investing in Multi-Family Properties

These advantages are some of the reasons multi-home investors love and swear by multi-family unit investing: 

Improved Cash Flow

When there are more units, there’s more potential for cash flow. In essence, one building is providing multiple streams of income simultaneously. However, with single-family homes, there’s only one income stream. For multi-family properties, there are two or more units producing cash each month.  

A Simple Loan Process

You only need one loan for a multi-family property. Even though there are several units, you won’t have to take out multiple loans for each of them. Compare that to single-family homes. In single-family homes, investors have to get new loans for every new property. One loan means less paperwork and a much simpler process. 

A Single Insurance Policy

Much like a loan for multi-family properties, you’re going to have one insurance policy instead of several. Having one policy to cover multiple units is much easier than having numerous policies for several single-family homes. 

Lower Risk of Total Vacancy

The risk of complete vacancy is low with multi-family units. When you lose a tenant in a single-family property, you’re left without cash flow and scrambling to fill the property. With multiple units, it’s highly unlikely all of them will fall vacant at the same time, so you’ll almost always have cash flow coming from the property. 

Long-Term Value

Multi-family properties tend to have stable, long-term growth. They often don’t deal with the same fluctuations that the traditional housing market does. Multi-family homes are priced based on their income-generating potential – not the market. 

Tax Benefits

Taxes are an essential component of any type of investing. The tax code is complicated, but there are clear benefits for landlords with multi-unit properties. US tax law allows multi-family real estate investors to depreciate their building’s value over twenty-seven and a half years and write off that year’s depreciation as an expense – thereby reducing taxable income. In addition, they can accelerate depreciation by itemizing, depreciating up to 90% of a building’s value over seven years.  

Cons of Investing in Multifamily Properties

These cons are some of the reasons people decide to pass on multi-family property investing and stick with single-family property investing: 

Maintenance Needs

The more units there are, the more maintenance requirements there will be. Often, you’ll have things break down in several units at the same time, which equates to more ongoing maintenance needs and higher operational costs. 

Hardwood flooring looks and feels great, but it’s important to understand maintenance needs before going with a genuine hardwood option. A low maintenance update should be considered in order to accommodate higher foot traffic. In this case, we highly recommend alternative products that are a part of our Jasper Engineered Hardwood and Vesdura Vinyl Plank lineups.

Management Requirements

Like maintenance, the more tenants you have, the more time you’re going to have to spend being a landlord. Many experienced property investors hire managers to run their property, but that’s an additional cost that many new investors can’t take on right away.  

Larger Up-Front Cost

A multi-family property is going to cost a lot more than a single-family unit. The upfront investment can be pretty high – especially if you’re new to investing. 

Property Scarcity

It’s not easy to find suitable multi-family property out there. Multi-family properties aren’t sold as often, and usually, when they are up for sale, there are shark investors ready to swoop in and buy before they even hit the market. This can make getting started difficult. 

Stricter Regulations

There are many regulations for renting property and being a landlord in single-family homes, and even more regulations with multi-family dwellings. It’s imperative to research your state’s laws, otherwise, you could face hefty fines or jail time. 

Experienced Competition

Being a beginner in multi-family investing can be tough. There’s no shortage of highly experienced property investors. They know how to find and negotiate deals and often have a lot more starting capital than beginner investors. Experienced competitors will often be working to win over the same tenants that you are – and they have the tried-and-tested experience to know what works and what doesn’t.  

Determine if Multi-Family Investing is Right for You

Ultimately, multi-family property investing can be highly beneficial. However, it’s cost-prohibitive and highly competitive, making it a difficult venture for beginners.

At the end of the day, you’re the only person who can decide whether single-family home investing or multi-family property investing is right for you. As long as you weigh the benefits and downsides, you will make the right decision.  

Whether you’re interested in single-family or multi-family properties – we can help. At BuildDirect, we specialize in low-priced, high-quality home remodeling materials. We have unbeatable selections and unparalleled customer support.

Plus, all property investors get the option to join our PRO rewards program for free, which provides unlimited samples, 30-day money-back guarantees, onsite delivery, and a 5% credit on your purchases.

Become a PRO rewards member today and start saving on your investment property renovations. 

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