Investing in real estate can be both exciting and profitable, if you know what you’re doing and have the investment money to use. I’ve been in the real estate game myself, having rented out our old house to tenants. So far so good for us! In terms of actual investments, there could be: single family homes, REITs (publically traded companies that purchase real estate), or even multi-family units, like apartments. When you are considering real estate investments perhaps it is time to look at whether buying a multi-family home might be the investment solution you have been searching for. Although it may not seem like something you can do now, it’s less farfetched than you may think! 

Of course any real estate involves risk and careful consideration, and whether it’s a single house or small apartment complex, so let’s dive into a few things to think through as you’re looking into more real estate investing: 

A calculated risk

Like with any investment, real estate comes with risk. However, that risk in turn comes with a higher potential return. With real estate investing in particular, it’s important to do your homework. What is the value of the property you are looking at compared to the asking price? How has the overall area fared with prices and stability? 

What about the rental market? How has the units in question done in the past and what does the future look like? Are rental rates increasing or decreasing? What type of rent do you foresee yourself charging vs your mortgage loan payment? 

Assuming the numbers look positive and you feel confident, this may be a risk worth taking! 

Cost considerations

If you are going to be buying a property that has several units, making a wise investment will involve considering the costs, and not just the purchase price. Buying it will either involve taking out a loan (i.e. a mortgage) or paying for the entire thing with cash. For most young professionals, this will involve taking out a loan. That will invovle applying, comparing interest rates and fees, and making sure the rent will cover the mortgage payments. Just because it’s a bigger property doesn’t mean you should shy away from it – more units mean more rental income!

In addition to the purchase price and rental income, you’ll need to factor in maintenance and repairs. What status is the roof in? How old are the HVAC units? Are most of the units in good shape? Make sure you factor in costs, and not just the mortgage cost into the overal equation! 

Location, location, location

Probably the most important rule of real estate is the location. Location is one of those key factors and this definitely comes into play when you are looking at a multi-family unit. If you are going to be able to charge a reasonable amount of rent and attract good tenants who are prepared to compete for a property it will often need to be in a good location that offers easy access to schools and local amenities.

One scenario where you might be able to be more lenient with this criteria is when you find an area where multi-family properties are hard to come by and, therefore, demand will still probably be high.

It is possible to make some sensible sacrifices on location if you can find a suitable property in an area where competition is thin on the ground and you might be able to command a decent monthly rent in comparison to the price you pay for the property.

Work out your margins

Investing in a rental property where the profit margins are thin is a risky strategy because you could soon find yourself in the red if you get any rental voids or need to carry out an unexpected repair that makes a hole in your cash flow.

It is always a sensible idea to work out all your costs and work out what sort of profit margin you are working to, regardless of what type of investment property you are buying.

The underlying essential of good property investment is to find an opportunity where the margins between your costs and profits are large enough to leave some room for maneuver if you end up spending more than anticipated. 

Review lending costs 

Investing in a multi-family property involves a slightly different line of thinking and an understanding of how the financial aspects of the deal are likely to work.

The basic underlying principle of investing in multi-family homes is that you are going to be taking on bigger loans but the upside is that it can often prove easier to obtain the finance you need, despite the fact that you are borrowing more.

One of the reasons for this is that a multi-family property has the capacity to generate a high level of income each month, which should be more than sufficient to cover your borrowing costs.

Another positive point is that if you are buying a property that will be divided up into separate rentals, this helps spread the risk, which can make lenders more comfortable about the loan proposition.

All things considered, it can be the case that financing a multi-family real estate lending opportunity may well be viewed as a less risky proposition by lenders, so you could find it easier to get the money you need if you have done your homework and the numbers add up.

You have more options when it comes to property management

Not every real estate investor likes getting their hands dirty with the day-to-day management of their portfolio but if the margins are thin there may not be enough room to be able to afford using a property management company to act for you.

It can be the case that because you are able to generate more generous levels of income on a multi-family property you may well have enough in the pot each month to be able to appoint someone to look after the management of your portfolio and still make a decent profit after deducting that cost.

If you are looking to generate a reasonable level of rental income and grow your capital it might be that investing in a multi-family opportunity might be the way to achieve that aim! 

Disclosure: Some links are affiliate links that may earn me a commission.