The Cons of Multi-Family Property Investment

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Despite the many benefits of investing in multifamily property, there are also some drawbacks. A few of the cons are outlined below:

  • Management Intensity Although property management can be outsourced, that doesn’t mean that multifamily isn’t management intensive. In fact, it’s quite the opposite. A multifamily property means dealing with many individual leases, different tenants who have various repair and maintenance requests, tenants who prefer to communicate in different ways, pay their bills differently, etc.

    When comparing management intensity of only residential property types, managing a multifamily property can be considerably easier than managing a disparate portfolio of single-family rentals. There are efficiencies that come with managing a single multifamily asset, including the ability to hire an on-site or live-in property manager, depending on the size of the property

  • Cost Depending on where you’re looking to invest, multifamily property can be really expensive. In fact, this is one of the largest barriers to entry for most investors. Most banks will want to see the investor put down at least 20% as a down payment (if not more), which would mean at least $200,000 on a property that sells for $1 million.

    Coming up with that cash is no easy feat for the average investor, particularly in a bull market where many investors compete for the same multifamily property, thereby driving prices even higher. Single-family homes are often less expensive for those looking to buy residential rental property, but as noted above, single-family homes have their own management challenges to consider.

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Multifamily Investing Benefits

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A multifamily property is a residential building with two or more units under one roof. They can also be several buildings within one complex. The most common examples are duplexes, townhouses, and some types of condos. Each unit tends to have its own living space, a separate kitchen, and a bathroom. A multifamily property will generally consist of owning the property and the land on one recorded deed. In some cases, it can be owned by one or more parties.

While they are the least common type of residential buildings, investing in multifamily properties is an immensely favorable strategy among investors thanks to their additional source of monthly income, along with slow but steady appreciation. As an investor, the advantages of owning a multifamily property include:

  • Bigger Cash Flow: A single-family property generates a single monthly income, and a multifamily property produces multiple forms of monthly income. The allure of investing in multifamily properties is easy to see. These investments represent an innovative opportunity to generate additional income from one investment. Also, investors may decide to live in one unit and rent out the others for income. When it comes to passive income retirement investing, a multifamily property can be used in multiple ways.

  • More Control Over Value: The more income a property receives, the higher the value is. Multifamily properties are comprised of more units, which means earning multiple streams of income. Therefore, these types of investments are generally valued higher than single-family homes, which are dependent on comparable sales as rentals.

  • Larger Pool Of Tenants: One of the underlying benefits of investing in multifamily properties is less risk. How you ask? Because, unlike single-family units, where income is lost when the home is vacant, multifamily properties have numerous units and alleviate the total economic loss for investors.

  • Scalability: Multifamily investments epitomize scalability. Rather than purchasing one property at a time, these investments allow for the acquisition of multiple properties within one building. They are perfect for those looking to grow their real estate investment portfolio and take their business to the next level, with the option for investors to venture into the arena of mixed-use and apartment investing down the road.

  • Ideal For Property Management: Single-family properties typically do not generate enough income to justify hiring a property management company. However, a multifamily property typically generates enough income to provide investors with the ability to hire a property manager to handle day to day operations and handle repairs that the property requires. This can be a great benefit for investors who are looking to have less involvement in their rental properties.

  • Tax Benefits: Multifamily property offers great tax benefits for investors. Investors can take the depreciation of their multifamily property to offset a great deal of the rental income that they collect from the property each year.

New investors should conceptualize multifamily real estate as a hybrid between a single-family home and a condo. Both the structure and the land is owned and on file in one recorded deed. These investments allow for the ability to generate more income than a single-family property. They are ideal for those looking to not only grow their business but also offset risks when generating monthly income.