What is Multifamily Real Estate?
A lot of our social media posts this week have been about multifamily real estate. It occurred to us, that many of you might not know of or have a full understanding of what multifamily real estate is? So we decided to provide some context for possible investors or future developers to clarify, just what is multifamily real estate?
Diversifying your investment portfolio, by buying multifamily homes may be the right move for you based on interest rates and rates of return. Multifamily units are some of the best real estate investments for several reasons.
So What Is Multifamily Real Estate?
No matter the level of experience you have, brushing up on some real estate basics won’t hurt. Basically, a multifamily property is a residential building with more than one housing unit. Multifamily real estate can accommodate multiple tenants, each having its own kitchen, living room, bedroom, and bathroom. A multifamily home is also known as a multi-dwelling unit (MDU) and these multiple separate units can also be held in one or several buildings in the same complex.
Multifamily Homes vs. Single-Family Homes
When it comes to residential housing, the main types of real estate investments are single-family homes and multifamily homes. You already know multifamily real estate houses, multiple tenants, at the same time, so you can assume that single-family refers to a building that only houses one tenant at a time.
The root reason why becoming a multifamily real estate investor is often a better decision than owning a single-family home is the opportunity of having multiple income streams generated from the same investment property. If one person stops paying the others can pick up the slack until you can address the problem.
That answers the basics on “what is multifamily real estate?” now let’s discuss the specific types of multifamily properties.
Types of Multifamily Real Estate Properties
There are different levels of multifamily real estate investing depending on how many rental units each building holds. Here are the basic types of properties:
Duplex: A duplex is the simplest multifamily real estate investment. This is one building, which is divided into two separate “houses” that are typically side-by-side. The distinct difference by law is that even though it’s the same building, each house has its own entrance and there are no common areas.
Triplex and Fourplex: Like duplexes, a triplex and fourplex are buildings with three and four housing units, respectively. Each having its own private space including a kitchen, bathrooms, and bedrooms.
Townhouse: Any number of houses attached at the sides with separate private entrances. They can also be on top of each other (typically two units vertically), usually with their own private exterior entrance.
Condo and Apartment: These are the more common types of properties that come to mind when people think of multifamily real estate. A condo can be an individually owned unit in a multifamily housing complex. Whereas, apartment buildings are wholly owned by one owner. Although their purpose is to house tenants, apartment buildings are considered commercial real estate investments.
Now that you know which types of multifamily investment properties to look for you will need an expert with knowledge of the city (Where to find them) as well as construction needs if it requires repairs or conversions. A company like BHI Construction and Real Estate Development can help with all of your development needs.
Other Things to Consider Before Investing in Multifamily Homes
Multifamily real estate is one of the best types of real estate investments to quickly build wealth, but you need a good strategy.
Here are a couple of things you should generally keep in mind when assessing potential multifamily real estate investments.
Short for capitalization rate, this is a measure of potential return on investment. To calculate the cap rate, simply divide the net operating income of the property (net profits after expenses) by the price/value of the property. It is a very basic calculation, but finding the cap rate could end up being quite difficult if you don’t have all the right information. Rely on experts to help.
Financing a multifamily property is actually sometimes easier than financing a single-family home. Multifamily real estate is more expensive, but getting approved for a bank loan is more likely because banks view multifamily real estate investments as less risky than a single-family home. The cash flow of the investment doesn’t depend on only one tenant, and a vacancy won’t quickly trigger the need for foreclosure.
Investing in a multifamily rental property doesn’t necessarily mean you need to become a landlord. For real estate investors who don’t want to deal with the day-2-day operations, hiring a professional property manager to take care of the rental property and its tenants is the best option.
The stronger the cash flow these properties generate the more leeway you have to afford a property manager. Their tasks can include finding and screening tenants, collecting rent payments, handling evictions, and maintaining the property.
Having the right expertise and knowledge on your side can mean the difference in a real estate project that will help you build wealth versus a giant headache that drains money from your accounts. Finding a knowledge development and construction partner like BHI should be your first step to any real estate investment.