Investing in multifamily real estate has many benefits. However, with any investment, you should familiarize yourself with both the pros and the cons of that specific type of investment. Multifamily properties offer investors multiple streams of income because, with each tenant or family, there’s income potential. However, there are some cons as well, as with anything. It’s best to familiarize yourself with both the pros and cons to develop a realistic understanding of investing in multifamily properties.
Cash Flow
Investing in multifamily real estate helps create cash flow. You have more than one source of cash coming from tenants in each unit. If you lose one tenant, there are still other paying tenants which means that your cash isn’t usually too compromised.
Easier to Finance
Multifamily units are considered less risky investments to lenders than single-family units. Because there are multiple tenants, you have money coming in from more than one source. As a result, many lenders will consider a multifamily unit a less risky investment than a single-family unit.
Scalable
Multifamily units are also considered scalable investments. There are multiple streams of income coming from one apartment building. You can grow your investment portfolio much quicker with a multifamily unit as opposed to a single-family unit.
Tax Benefits
Another pro to investing in multifamily real estate is the obvious tax benefit. You can deduct your maintenance and operation costs, utilities and property management fees, as well as maintenance and repair expenses. Other tax deductions include insurance premiums and marketing costs.
Passive Income
Multifamily units allow investors to make money while they sleep. This cycle of cash flow/income is repeated, even if there’s no work to be done in terms of maintenance and repair. You can count on a monthly stream of income without you doing much.
Simplicity
Multifamily real estate is a relatively simple investment because you’re able to purchase a property with multiple units with a single loan. Lenders understand this and can write the terms and other applicable parts of the loan accordingly.
However, although multifamily real estate offers some obvious and admirable benefits there are some cons you should be aware of.
Multifamily units come with a much larger upfront cost. Even smaller, two to four-unit properties can be very expensive in cities like San Francisco or New York. Plus, there’s often a lot of competition to obtain multifamily properties because many investors recognize them as hot commodities. Logically speaking, multifamily units also represent more to manage. Because you’re purchasing a property with multiple units that will be inhabited by multiple people, each unit will need to be maintained, which can be quite expensive. Multifamily units have many obvious benefits when it comes to investing. However, investors should be aware of the cons as well.