What Is A Multifamily Property
To put it simply, a multifamily home is any residential property that features more than one housing unit.
These could be duplexes, triplexes, fourplexes, apartment complexes, or really anything that involves multiple tenants living in occupied units on one property. Owners can live in any of these units as well, which would make it an owner-occupied propertysomething we call house hacking, which is typically done with residential multifamily properties with two, three, or four total units.
Properties with more than four units are deemed commercial, while four and below are deemed residential. This distinction is important for lending purposes, as the lending rules for residential multifamily differ from the lending rules for commercial investments.
In addition to the lending distinction, larger multifamily properties may also have different methods for finding, analyzing, financing, and managing the property. For this reason, most investors getting into multifamily start with small residential properties and move into the larger multifamily deals once theyve gained some experience.
Now, lets go over how amazing these properties are and why you need them in your portfolio.
Best Cities For Foreign Investment In United States Real Estate
According to an old survey of the Association of Foreign Investors in Real Estate , the United States was deemed the number one country for planned real estate investment and the 5 best cities for foreign investment in United States real estate are:
- Los Angeles
- New York
- Washington, DC
- San Francisco
With 58% of respondents votes, the US remains the country considered the most stable for real estate investment, and 86% said they plan to maintain or increase their investment in US real estate.
Real Estate Remains One Of The Top Investments
There are a few things worth investing in, like real estate.
Technically, gold and silver bullion is a close second. You can never go wrong investing in gold and silver bars, coins, and currency. Unlike investing in stocks, gold and silver are relatively safe investments. The value constantly fluctuates, but it always trends upward.
Real estate is the same way. Home values are constantly fluctuating, but the value will only rise .
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Have Any Other Questions About Investing In Chicago Multi
With over a decade of experience helping clients buy and sell investment properties in Chicago, we understand the complications that come with the process. Feel free to reach out to our team with any questions you have, or check out our Advanced Search feature for local listings and start the search for your next property today.
Why Multi Family Investing Is Suitable For Every Investor Type
Multi family real estate investing is one of the most popular forms of real estate investing.
Duplexes, triplexes, quadruplexes, dorms, senior housing, mobile home parks, and so on
For one, it offers a way for investors to enter the markets they want at less of a financial barrier to entry.
Secondly, its one of the most reliable property types in terms of risk/reward across the country.
Buying multi family real estate is an incredible way to generate passive income.
There are several reasons why you may want to consider investing, too, as well highlight below.
Benefits of Investing in Multi family Real Estate
1. Buying multi family real estate is a good way to grow passive income.
Investing in multi family real estate is a great way to generate additional income without lifting much of a finger.
Lets use a physician for example:
Physicians tend to earn high incomes, so coming up with the 25% down that a lender requires for an investment property is generally achievable.
For example, if a physician decides to purchase a $500,000 four-unit multi family property, this will require him to put down $125,000.
Its no small chunk of change, but its usually something that more established physicians can manage.
Yet physicians are busy. They work long hours. Theyre often on-call and need to respond to emergency situations.
Responding to tenant calls in the middle of the night is usually out of the question for a physician.
Thats where a property manager comes in.
What Are The Different Kinds Of Multi
If youre interested in investing in real estate, its good to know the different types of multi-family homes on the market. Multi-family properties with 2-4 units are often referred to as residential multi-family. Properties with 5 or more units are commercial multi-family, require more upfront capital, and are subject to different requirements for financing and taxes.
For the purposes of this article, well be discussing residential multi-family as an investment strategy. To keep it simple, we will use the term multi-family to refer to properties with 2-4 units.
Single Family Vs Multifamily Investing
Investing in single-family vs. multifamily properties is a great debate in the world of real estate investing. While each offers several compelling advantages, each side represents a very different exit strategy for investors, including management style and income earned. Investors, insurers, and lenders view these properties differently. Comprehending the ins and outs of multifamily and single-family properties is critical for your success.
For those considering taking the plunge and investing in multifamily properties or single-family properties, its important to understand which investment vehicles do what. Deciding among single-family or multifamily properties is largely about personal preference and goals. The following will explain the major differences between the two investments, including each strategys various advantages and disadvantages. If you are looking for an answer for the single-family vs multifamily debate, I encourage you to keep reading.
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A Quick Estimate Of Repairs Needed
Overall, the property was in pretty good shape. It looked pretty ugly from the outside . It definitely needed a new paint job on the outside, and some of the shingles from a fairly new roof had blown off in a freak windstorm we had several years back . Additionally, the fifth unit needed some help to bring it into a rentable shape. I estimated about $10,000 worth of work to get the place fully finished, including finishing up the fifth unit.
Immediately, I recalculated my numbers based on the new unit that I could eventually get rented out. As it turned out, it looked like this:
- Units 1-4 Rent: $450 each x 4 = $1,800
- Unit 5: $600
- Mortgage at $100,000: $550/month
- Mortgage at $90,000: $470/month
- Mortgage at $80,000: $430/month
Remember, these numbers are based on having no money downso they are far above my threshold.
What Are The Most Important Trends In The Best Multifamily Markets 2020
We know that this is a lot of real estate data to take all at once, so weÃ¢â¬â¢ve summarized the key points for you:
- The first thing which any real estate investor probably noticed is that the average cap rate for multifamily homes in these top locations ranges between 1.8% and 5.9%. This is significantly below the recommended good cap rate of 8%. However, you should keep in mind that these are only average cap rates by city, while some neighborhoods within these markets offer double-digit return on investment.
- The best multifamily markets 2020 are generally affordable with median property prices between $105,500 and $1,343,200. ThatÃ¢â¬â¢s not a lot considering that we are talking about buying multiple rental units at once. Buying cheap real estate is important for beginners who donÃ¢â¬â¢t have much cash and face limited financing options.
- The monthly rental income varies between $830 and $6,470. These values are enough to provide good return on investment.
- These top locations for investing in multifamily real estate properties have a price to rent ratio from 13 to 25. Most of them have medium to high price to rent ratio, which means strong rental demand for traditional investment properties.
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Close On The Property
In my state, we close real estate transactions with title companies, though in some states, you might use an attorney. Either way, the process is pretty much the same.
Lets do a quick re-cap:
- I found the property online.
- I did a quick, five-minute analysis of it.
- I walked through the property quickly.
- I offered on the property.
- I negotiated on the property and finally agreed on terms.
- I inspected the property.
- I arranged financing.
At this point, I was ready to proceed. My real estate agent sent over the purchase and sale agreement to the title company, and the title company went to work. It took about a week or so to finish the process, where they did a title search and prepared all the documents, including the promissory note and deed of trust between me and the private lender. I arranged for insurance and made an appointment to sign the documents.
Then I closed on the property. As an added bonus, the property management company who was looking after the place before closing actually found a tenant for the fourth unit before closing, so I inherited the property completely full .
Whats The Difference Between A 2 Flat And A Duplex
Once youre in the market for a multi-family, youll hear terms like 2 flat and duplex thrown around a lot. While the two words are similar, they dont mean the same thing when referring to Chicago properties, so its important to learn the difference.
The word duplex refers to a building with two units, but it doesnt mean that both units are considered parts of the same property. A duplex in Chicago can be a building with two townhomes or condos that are separately owned and financed. To keep everything straight, we like to refer to two-unit properties as two-flats. Make sure to make it clear to your realtor which type of property youre interested in to avoid confusion!
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Multi Unit Mixed Use Properties For Sale
A mixed-use building blends two or more uses into one building, including any combination of: retail, entertainment, office space, residential, hospitality, parking, or transportation.
Mixed use buildings are appealing to users as they offer all in one features, such as a living space and workspace.
This multi-faceted appeal can help reduce the risk of investing, stacking the odds in your favor when it comes to guaranteeing steady, reliable income.
CREXi is a commercial real estate listings platform covering each of the main asset classes, including mixed-use buildings.
You can search for mixed-use properties for sale using CREXIs many search features, including size, price, and lease type. You can also search for properties based on class type .
CityFeet, the sister site of LoopNet, features commercial property in New York Citythough, with a secondary focus on property nationwide.
If youre looking for mixed-use property in New York, CityFeet is your best bet, allowing you to search based on function, size, price, location, and tenancy.
Reasons To Invest In Multi
Real estate can be an alternative for those unable to withstand the volatility of the stock market. It is also a better investment for investors who wish to take an active role in growing their capital, rather than passively putting their money into a fund managed by someone else. One of the beautiful things about real estate investing is that there is more than one strategy that can be successfully used.
For example, real estate investing moguls Donald Bren and Zhang Xin both built their billion-dollar fortunes by developing various residential and commercial properties. On the other hand, Equity Residential founder Sam Zell created his wealth by slowly acquiring an income-producing portfolio of rental properties.
Other real estate investors have also made millions of dollars from house flipping or purchasing properties that are in disrepair for cents on the dollar and renovating them to later sell them to a new owner.
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The Bottom Line Of Buying A Mfh:
Finding the perfect multifamily home takes time and effort. There’s a significant amount of research needed about the home, the neighborhood, renter quality, and finances. MFH seekers should start well in advance and be patient along the way. This market is much more competitive than the SFH market, and a lot more things can go wrong in the buying process.
To best protect yourself and your family, work closely with real estate agents and professionals who know the pitfallsand don’t be afraid to build a relationship with the seller. After all, they have had good memories in this home and may still be personally invested in making it a successful rental business for generations to come.
What Are The Cons Of Investing In Multi
Buying a multi-family and making profit from rental income sounds like the dream, and while it can be very beneficial, its worth noting that it takes work as well. Youll be responsible for maintenance in all units, collecting rent payments, and finding new tenants when the time arises. To stay on top of your finances, you will want to save portions of rental income and schedule contractor work for parts of the house that need updating. Youll also have to keep track of landscaping and mediate tenant conflicts when they arise.
Its possible to get a property manager, but this also takes time and funds that otherwise go to you. While a multi-family is a good investment, it does add work to your days and isnt the right investment choice for everyone.
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How Much Profit Can One Property Generate
Your profits will depend on how you use your investment property.
There are several different investment strategies. For instance, you can turn a property into a rental property, flip it, or use it strictly as an Airbnb business.
If you plan on fixing and flipping, its wise to get your real estate license. Consider that getting a real estate license is more accessible, easier, and more affordable than you might think.
Having a real estate license will make it easier for you to post listings on the MLS without going through a third-party, and youll be able to do so much more as a bonafide agent. Your profit potential will also increase once you get your license.
If youre not interested in doing all the work to fix and flip, and youre not keen on running an Airbnb business, rental property is the best choice.
How To Buy Your First Multifamily Property
Once an investor acquires a few single-family residential properties, the management of each property can become a full-time job, with plenty of overtime. Running between properties to coordinate maintenance and completing administrative tasks can take its toll.
This was the situation I found myself in while living in Vancouver, Canada, eight years ago. After consulting a few experts, I decided to relocate to Atlanta, where I could expand my real estate portfolio to include multifamily properties. Within a few years, I was able to consolidate my assets and collect more income from each property. It also drastically reduced the time spent running between individual single-family properties. Today, this multifamily real estate portfolio is worth $35 million.
If you find yourself in the same dilemma I was in eight years ago, weighing what to do next, here are a few tips to help you navigate the future of your investment strategy.
Explore New Horizons
When living in a city where real estate prices surpass the average income earners capacity for buying a property, look for a new destination to call home. In many cases, individuals can achieve this by moving just a few hours away.
How does one predict when and where rapid gentrification will take place? Fortunately, the clues are anything but stealthy.
Redeem Your 1031
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Isnt It Better To Buy A Building With Units That Are Fully Rented
It depends on your investment strategy, but oftentimes, no! Its great to have rented units since it guarantees rental income until the end of the lease agreements, but as with any benefit, theres a flipside. If all units are rented more than sixty days after close, you wont be able to live in one of the units to claim owner occupancy, which prevents financing options like the FHA or VA loan. If youre hoping to live in your building, make sure to request copies of any lease agreements to confirm that at least one unit will become vacant soon after your closing date.
How To Buy Multifamily Homes
If youre wondering how to buy multifamily homes, it pays to have a good idea of where to start, how to choose a loan type, and whats involved with making a strong offer.
Below, we take a closer look at the multifamily real estate investing process and how you can maximize your odds of successfully identifying and capitalizing on new opportunities.
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Renovate And Make Repairs
Before you open your doors to the public, youll need to make any repairs detailed in your inspection report and ensure that your multifamily home follows local codes.
You may also want to invest in some cosmetic upgrades, like new doorknobs, light fixtures, cabinet pulls, and a fresh coat of paint. Bear in mind that you might find youre able to attract more tenants or even increase your rent not to mention overall net operating income with the help of these upgrades.
Be sure you have a maintenance plan in place as well. This plan should handle any tenant repair requests and regular upkeep of the building as well as lawn care and snow removal.
What Are The Pros And Cons Of Purchasing A Single
When purchasing a single-family home, theres a lot to consider:
Youre tenant dependent. Youll be locked into a more limited income stream when your sole renter is your single source of income, and a vacancy of the home results in total loss of revenue.
Single-family homes can draw long-term tenants. Rental homes in neighborhoods with good schools, local parks and easy access to shopping areas are a good fit for renters that are ready to settle down and sign a multi-year lease.
Better short-term benefit. Homes offer a better exit strategy. Unlike owner-occupied dwellings, investing in a single-family home can out-perform the financial gains made by multi-family properties in the near-term because the home usually appreciates in value more quickly.
Insurance for single-family homes is cheaper. Because the value of the propertys less, so will your cost for insuring the space. Regardless of the landlords insurance policy you purchase for the space, keep in mind that your tenants items will not be covered by this policy. Its important to either have a clause in your lease strongly encouraging or requiring them to get renters insurance. Check with your state and local codes to determine which action is right for your area.
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