What is the best type of real estate investment for your money?
Experienced investors think about this all the time. If you’re a new investor, you have probably considered the question at least once or twice. What kind of property should you buy?
The answer begins with your investment goals. But you also have to consider the market.
Right now, multifamily investments are having a moment.
We expect that moment to last into the next few years.
Figuring out what your next big investment move should be can be stressful. However, we believe that multifamily properties are where you want to be right now. And, we’re going to tell you why. We’re also going to share a few tips on getting started.
Whether you’re new to multifamily investing or already fully aware of why it works so well, let’s take a look at why these property types are an increasingly popular choice.
What is Multifamily Investing?
Multifamily investing involves purchasing properties that house multiple separate units within a single building or complex. The primary appeal of these properties is the ability to generate rental income from multiple tenants, potentially offering a more reliable revenue stream compared to single-family homes.
If you’re wondering what qualifies as a multifamily property, here are some of the various forms, each suited to differing investment goals and management styles:
- Duplex. This consists of two units in a single building. Typically a duplex will have two adjoining units, or one unit upstairs and one unit downstairs. Duplexes are often seen as an entry-level option for investors due to their relatively lower cost and general ease of management compared to larger properties.
- Triplexes and quads. These are exactly as they sound; containing three and four units respectively. These offer greater rental income potential while still being manageable for investors just starting out.
- Apartment buildings. When you’re looking for larger scale multifamily properties, you’ll consider apartment complexes, which can range from small buildings with five or more units to massive high-rise structures with hundreds of apartments. These types of properties often require more sophisticated management and maintenance operations, but they offer significant economies of scale and rental income diversification.
Other specialized multifamily options include townhouses and mixed-use developments, which can combine residential units with commercial spaces, providing additional revenue streams. Each property type offers unique opportunities and challenges, making it essential for investors to carefully consider their objectives and resources when choosing the right multifamily property.
Why Should You Invest in Multifamily Properties?
We encourage the investors we work with to consider multifamily properties for a number of reasons.
- Consistent Cash Flow
One of the major benefits of investing in multifamily properties is the consistent cash flow they can provide. With several tenants contributing rent, the collective income from these units can create a stable and predictable revenue stream. Even if one unit becomes vacant, the other units’ rental income can help cover expenses. Charlotte’s rental values are high enough that renting to a few people at once can provide some positive income and high earnings.
- Economies of Scale
Multifamily properties allow investors to achieve economies of scale, making them more cost-effective in terms of management, maintenance, and repairs. Managing multiple units under one roof can significantly reduce per-unit costs, increasing profitability.
- Easier Financing Options
This depends completely on your own financial situation, but lenders often view multifamily properties as less risky than single-family investments due to their ability to generate income from multiple sources. This perception can make it easier to secure financing with favorable terms, potentially lowering interest rates and boosting returns on investment.
- Tax Benefits
Real estate investors can take advantage of various tax benefits associated with multifamily properties. These benefits can include depreciation, mortgage interest deductions, and operating expense write-offs, which can significantly lower taxable income and improve cash flow.
- Portfolio Diversification
Investing in multifamily properties allows you to diversify your investment portfolio, reducing risk compared to putting all your money in one property type. This diversification can provide a buffer against market volatility and economic downturns, as rental demand tends to remain steady even in challenging times.
- Appreciation Potential
While cash flow is a primary driver for multifamily investments, the potential for property appreciation should not be overlooked. Over time, these properties can increase in value due to factors like location improvements, market demand, and strategic upgrades, providing capital gains opportunities when it’s time to sell.
Getting Started with Multifamily Investing
When investors approach us for help with investing in multifamily properties for the first time, these are some of the things we tell them to consider:
- Research the Market. Understand local market trends, demographics, and economic conditions to identify areas with strong rental demand and growth potential.
- Analyze Potential Properties. Perform thorough due diligence on prospective investments by evaluating historical occupancy rates, rental income, expenses, and projected returns. We can help you gather as much data as possible.
- Secure Financing. Work with lenders experienced in multifamily properties to access competitive financing options tailored to your needs.
- Monitor and Adapt. Once you invest, continually assess the performance of your properties and be prepared to adapt strategies based on market changes and tenant needs.
We also need you to understand the importance of partnering with a property management partner early in the investment process. Don’t wait until you’ve bought a building. Gather your team early so that you can make good decisions right from the start. We can talk to you about the amount of rent you’ll likely earn and what kind of maintenance budget you’ll need.
Investing in multifamily properties offers numerous advantages for those looking to expand their real estate portfolios. With consistent cash flow, scalability, tax benefits, and more, it’s easy to see immediate benefits once you’ve invested in even one property.
We invite you to contact us at AM Realty, where we can tell you more about the multifamily investment opportunities in Charlotte and the market as a whole.
