Investing in real estate is a great way to diversify your investments and build wealth.
And, with so many options available – single-family homes, apartments, luxury homes, vacation rentals, and more – there is real estate for every type of landlord.
However, one of the most highly recommended kinds of properties to invest in is multi-family properties – more specifically, duplexes and apartments.
Investing in real estate such as this can give you returns 2-3x that of the stock market if you do it right.
In fact, it is suggested that as long as you invest in a rental property that yields a 7.2% cap rate or higher, you win against the stock market and are well on your way to a healthy retirement with plenty of income.
However, not all real estate is created equal. In fact, some real estate experts will tell you that investing in a single-family home, even if you live in it first and then rent it out when you are ready to move to another primary residence, is a liability, not an asset.
I believe that anyone looking to build true wealth should consider investing in multi-family real estate, if even to add to the single family rentals already owned and leased.
After all, I have invested in a healthy mix of single-family homes and duplexes, and have built a successful real estate business as a result.
Today, we are going to take a look at the reasons why investing in a multi-family real estate may be the best option for you, if you are thinking about getting into the real estate industry as a rental property owner.
The Benefits of Investing in Multi-Family Real Estate
Curious to know why investing in multi-family real estate is the way to go?
Keep reading to find out why I, like many other successful investors, recommend getting into the multi-family real estate business to grow your wealth.
1. Cost Effective
Oftentimes investing in multi-family real estate, such as apartments or duplexes, is only slightly more expensive than purchasing a single family home to rent. In fact, if you plan to live in one half of the duplex, and rent the other half out to tenants, a duplex can end up being more cost effective than purchasing a home for rent.
That’s because lenders tend to favor duplex owners that plan to live in one half of the property. After all, this helps to guarantee the lender they will receive the mortgage each month, unless you want to lose your primary residence, that is.
In addition, you may qualify for a higher loan amount, regardless of what your down payment is, because you can add expected rental income into the equation when qualifying for a mortgage.
If you choose to invest in apartments, you can also live on one of the units and manage the rest. Though lenders may not see your investment the same as they do with duplexes, at least you’ll reap the benefits of living in the property you own, while leasing to many tenants.
Lastly, dealing with vacancies when you own multi-family real estate is less burdensome than with single-family properties. That’s because if one unit goes vacant in your apartment building, you are still collecting rent from every other leased unit, reducing the amount of money that has to come out of your pocket to cover the expenses.
However, if your single-family rental goes vacant, you are not collecting rent from any other sources to cover the mortgage. Because of this, you may find yourself in some financial hot water if the property stays vacant for too long.
2. Higher Rent Rates
When it comes to the rent rates of multi-family real estate, duplexes typically garner the higher amount, when compared to condos or townhomes.
This is because duplexes usually come with an attached garage, a front and back yard, and a large enough living space that a family can live comfortably in it without feeling cramped.
This added value, when compared to other multi-family property types, makes duplexes more appealing to investors and tenants alike.
3. Less Work, More Benefit
You may not realize, but acquiring individual rental properties, especially in a similar location, is much harder to do than acquiring an entire apartment complex with multiple units.
After all, separate rentals call for separate inspections, negotiations, and closings. But when you purchase an apartment building, once the deal is done, you are set to start leasing out every single unit to tenants right away.
The same cannot be said for every single-family rental property you might be trying to buy at once. Deals fall through, inspections turn up issues, and you might find yourself with less property than you intended to buy, which means fewer opportunities to rent right away.
4. Special Tax Considerations
When you own a rental property, you must handle your taxes very carefully. In fact, it is recommended you hire a real estate accountant knowledgeable in the complex real estate tax laws.
That said, when you invest in a duplex and plan to live in one half, you might enjoy additional tax write-offs. This is because you can count half of the property you pay a mortgage on each month as a rental property in itself.
For example, you can write off things like maintenance and repair costs, advertising costs to fill vacancies, monthly property management fees you pay, and more. You might even be able to write off shared costs such as utilities for both you and your tenants.
Plus, if you use a portion of the duplex that you live in as a home office to conduct your rental property business, you can write off any costs related to doing business.
4. It’s a Good Learning Experience
For those just starting out in the rental property business, investing in multi-family real estate such as duplexes or apartments can help introduce you to being a landlord. After all, being a rental property owner is a tough business, especially if you plan to self-manage your investments.
However, living right next to your tenants, or at least in the same building, has many benefits. First of all, you can easily collect the monthly rent from tenants since they live next door. In addition, you know where to find your tenants if they are late with their rent. This makes getting in contact with them easy.
Also, maintenance and repair calls are easy to address since you are literally next door. And lastly, you will always know that your property is being well-cared for by your tenants since you can inspect the property every day from the outside and ensure there are no issues.
When you purchase a duplex, you have the flexibility to live in one half and rent the other, or rent both halves for a profit and have tenants cover the entire mortgage. This makes your job as a landlord more flexible.
It also ensures you have a place to live should you choose so, while still collecting a monthly rent check that goes straight into your bank account every month. It’s the perfect win-win situation.
In addition, you have many options when it comes to leasing your duplex – either just one or both parts.
For instance, you can:
- Only draft long-term leases
- Allow for shortened leases on a month-to month basis
- Use it as a vacation rental (even to family and friends)
- Make it an Airbnb and charge premium rates
And in the end, if you do decide to sell the entire property and move on to other types of real estate, or quit the business altogether, the resale value of a multi-family home is great.
Despite being attached, duplexes are separated properties, complete with two kitchens, separate entrances and garages, individual yards, plenty of bedrooms, and divided utilities that each half is responsible for.
The added value is undeniable.
The same can be said of apartment buildings. You can easily live on one unit, or not. It all depends on what you want to do.
There are many ways to break into the real estate business and build long-term wealth for yourself. And, while everyone has their own success story, and their own opinions about what works and what doesn’t, the numbers don’t lie – making the plunge into investing in multi-family real estate has the potential to bring you some serious profit.
That said, it can be tricky to know which advice to follow, how to get started, and if you are doing things the “right” way. That’s why you’ll need to put in the work, learn the real estate trade, and build a strong network along the way if you want to gain the financial freedom multi-family real estate investing offers property owners.
If you’re ready to start your journey in real estate, join “My First Deal Done in 60 Days” Training Program. As part of this program, you’ll learn a wide range of things about industry – from learning real estate basics, all the way to knowing what to look for in an investment property, how to structure deals, and much more.