Multi-unit Investing
By Paul Esajian on October 7, 2013
Most new investors get their start by investing in single-family homes. In most cases, they try to quickly flip these properties. However, the right circumstances should allow them to rent the property out. Over the past few years, there has been a surge in the popularity of single-family rentals. In that time, there has been a subsequent decrease in the interest of buying and renting multi-unit properties. The main reason for this is a distinct lack of financing for anything over four units. The more units you have, the harder your job as a landlord will be. In reality, the exact opposite may be the case.
As a landlord, single-family rentals can be hit or miss. If you have a good tenant, your job as a landlord is an easy one. On the flip-side, if you have a difficult tenant that stops paying on time, you may be subjected to an entirely different rental experience that has the potential to put you out of business. One of the main advantages of adding increased units is that you have increased security. The more units you have, the more opportunity you have of rents coming in.
It is a common misconception among novice investors that multiple unit management results in a larger workload. However, with all of your units under the same roof, your issues are consolidated. You would still have one roof, one driveway, one garage and one front yard. Depending on the number of units you have, an additional furnace or water heater may be required. The main takeaway should be that everything is in one place. This cuts down on time and costs.
With additional units and cash flow, you should consider hiring a company or property manager. This eliminates any concern that you will spend every waking minute at the property. Your monthly bottom line will be a little less, but it will be worth it. More time will allow you to pursue more deals.
There is nothing wrong with hitting singles as a real estate investor. With investing in single-family properties, there is usually only so much room for growth and appreciation. With multi-family prices as low as they have been in years, you are buying into a market that is at or near the bottom. You can enjoy the best of both worlds. You can rent for years and earn cash flow. When the market turns, and you are ready to sell, you can see the appreciation of each unit. Your return should be much greater than most single-family properties because of the number of units, cash flow and appreciation.
There is nothing wrong with focusing on single-family properties. There is also nothing wrong with looking into multifamily properties, if the right deal comes along. Each property should be analyzed on its own merit and strengths and weaknesses. Before you blindly dismiss any property strictly based on the number of units, take a step back and weigh the positives. You may be surprised with what you find.