Real estate has been a popular investment option for individuals who want to diversify their portfolio, and for good reason. It generates consistent income and anyone in the right financial situation can become property owners. While there are several property types to choose from, multifamily real estate is among the best properties to add to your investment portfolio.
Benefits of Multifamily Real Estate Investing
Financial Stability
Unlike single-family homes, multifamily properties have more than one unit. That provides rental income stability. If a tenant moves out of a single-family home, then you'll immediately lose income. Having multiple tenants on two or more units, on the other hand, means that you'll still have cash flow even if there are vacancies or late rent payments.
Diversified Real Estate Investment Portfolio
Owning a multifamily property immediately diversifies your portfolio since you'll technically have more than one unit. This can come in the form of condominiums or apartment buildings. Other than spreading your real estate investments across different assets, you'll also have increased returns and more reliable streams of income.
San Diego Has High Rental Demands
San Diego's vacancy rate is low. Chase Senior Regionals Sales Manager Lynnette Antosh said: "It’s a very livable area that’s attractive to a lot of people and has historically experienced relatively low vacancies and stable rents." It's always better to purchase multifamily homes in locations like California where the population is at a steady rise.
Tax Benefits for Multifamily Properties
One of the perks of multifamily investment properties is the tax benefits that come with the property type. For instance, you can deduct depreciation over time allowing you to lower your taxable income. You may even deduct property expenses like maintenance from your rental income as well, and that's just a few of the many benefits real estate investors can be happy about.
Passive Rental Income
It can easily be a way to generate passive income for you, depending on whether you hire a property manager to oversee day-to-day operations. Multifamily properties will be harder to manage since there are more units to oversee, but you can always hire a property management company like Harland Property Management to take over basic operations like rent collection and maintenance.
Multifamily Real Estate Appreciation
Like other real estate prospects, investing in multifamily properties early on can be beneficial to you both long-term and short-term, especially when it comes to property appreciation. If you ever decide that you want out of the rental real estate business, you can decide to sell the property. You’ll often get more than what you bought it for due to property values steadily rising with multifamily property.
Hedge Against Inflation
It can be a sound investment strategy in terms of protecting your assets. Through real estate investing, you can protect yourself financially from economic inflation. Investment property value increases with inflation, so you won't have to worry about your currency losing its value. Multifamily investments like apartment complexes just mean you can secure more of your money while expanding your real estate portfolio.
It Becomes a Physical Asset
Both single-family properties and multifamily properties are considered hard assets. You can keep it maintained and either the investment keeps its value or increases over time. Whether it's residential real estate or commercial real estate if there are five or more units, it can be physically inspected and appreciated.
What to Consider When Purchasing Multifamily Properties
Real estate investing can be complicated enough as it is, but it can be more complex when it comes to multifamily properties since you'll need a larger down payment and will lose more if you don't study the local market carefully.
Multifamily Property Codes and Regulations
You need to learn about the codes and regulations your multifamily investment is affected by such as the California Tenant Protection Act of 2019, wherein rental properties covered by the rent-ceiling limitations in California only allow a property owner to increase the rent each year by 5-10% based on the annual percent change in the Consumer Price Index.
Amount of Down Payment
As opposed to single-family homes, investing in multifamily properties may require a larger down payment since there will be multiple units, especially when it falls under commercial real estate investing. If you look at it long term, the purchase price is often worth it based on the cash flow from the monthly income since there are multiple rental units in a multifamily property.
Local Real Estate Market
Before investing in multifamily real estate, you need to research the San Diego real estate market and the asset classes that are best for you. Look into the fair market value of each multifamily investment property in the market and determine the net operating income.
Maintenance
You need to consider how much work goes into maintaining a multifamily property investment. Maintaining residential buildings is essential to keeping and increasing their value, and tenants are more likely to rent out a residential property when it's in order. You can hire a property manager to oversee this aspect of the business to make things easier for you.
Property Location
The location of the property is crucial to reduce vacancy rates. Is it near good schools? Is the neighborhood crime rate low? Is it near stores? If the rental demand for the location is high, then you can expect steady cash flow, making your investment worth every penny.
Operating Expenses
Investing in multifamily real estate means that you'll multiply the operating expenses of a single-family home by how many rental units you have. Even the difference between multifamily assets like an apartment building or an apartment complex has different costs, so be sure to keep that factor in mind for your investment plan.
Should I Hire a Property Management Company?
A multifamily rental property is among the types of investment properties that you'll need assistance with the most. A single-family unit with only one tenant is easy enough to manage, but overseeing several residential properties may become overwhelming.
Property management companies like Harland Property Management offer services and expertise to manage your multifamily homes. With competitive management fees, we'll take care of things like:
- Marketing
- Tenant screening
- Tent collection
- Maintenance
- Accounting
Property managers can help you generate passive income from multifamily investing without lifting a finger. You can even gain access to crucial insight into the rental market for each asset class and learn about multifamily investment opportunities. The company's ROI Calculator is already available for free to assist you with your investment decisions.
