If you’re interested in getting into real estate, either as an investor or as a real estate agent, it’s important to understand the different kinds of real estate you might be working with. Investors in particular need to understand the different kinds of real estate, the opportunities they represent, and the differences between the investment strategies that work for each type.
Multifamily real estate can be some of the most lucrative real estates to own as an investor, but it also takes a different style of management, and different evaluation, if you really want to succeed as an investor.
Here’s what you need to know about multifamily real estate, the differences between multifamily real estate and single-family real estate, and the advantages and disadvantages that come with this style of real estate investment.
What Is Multifamily Real Estate?
On the most basic level, multifamily real estate is any property that is designed for more than one family to be able to live in the same building. Some buildings are designed to be multifamily real estate from the start, especially bigger properties, while other properties may have been modified after the original construction to make multifamily living possible.
There are pros and cons to different types of multifamily real estate, including differences in the potential quality of the property, what kind of renter you’re likely to attract, and how much maintenance and upkeep the property will need to maintain its investment value.
If you decide to invest in multifamily real estate, you might also choose to live in the property yourself, in which case it becomes owner-occupied property.
Different Types Of Multifamily Housing:
There are several different types of property that all fall under the multifamily housing umbrella. Each of these property types calls for a slightly different investment strategy and will require different things from the investor.
One of the advantages of this kind of property is that you can often buy multifamily housing with a standard mortgage rather than a commercial loan. For properties that do require a commercial loan, you will generally have to pay more for the property than properties purchased with a standard mortgage.
Depending on your investment strategy, and if you’re investing by yourself, or with other investors, you might choose one specific type of property to specialize in. Specializing can be helpful, especially when you first start investing because each property is going to be relatively similar. Investing in several different kinds of property can help diversify your portfolio, but will also call for different management strategies.
Duplex, Triplex, and Quad Housing
Duplexes are the most common property in this category, but there are some triplex and quad properties that function similarly to duplexes.
A duplex is, most often, a two-story property living on each floor. They generally share a front door, but with a separate entrance for each unit in the duplex.
Some semi-detached houses will also be marketed as a duplex or triplex, depending on how the home is split, and in these cases, the unit may be side by side instead of having individual stories.
Townhomes are individual units separated by an interior wall. In a typical two-unit townhome, both units will have their own entrances, along with all the usual amenities in a home, but they will have one shared interior wall. In some cases, these are converted single-family homes that have been renovated and split into two units.
In some larger complexes, there may be more than two townhomes placed side by side. In this case, the interior units will have two shared walls, while exterior units will only have one shared wall.
Often townhomes also come with a small amount of yard space or patios that are not shared with the neighbors.
For a building to count as an apartment complex, it must be a single building with at least 5 separate housing units. Often complexes will also come with community amenities, like swimming pools, gym spaces, or a community rec room, but these amenities are not required.
Each housing unit is separate, and all units must meet the minimum housing requirements for the area, but any additional in-unit amenities are optional.
The more amenities included the higher rents can be. Different rent rates can also attract different kinds of tenants, which may be desirable depending on your investment strategy.
Semi-detached houses are a bit like a townhome but are generally a single-family home that shares a common wall with another home. The difference is usually that the semi-detached house was built that way, and often has more space, a larger yard, or other amenity differences.
Local regulations may also determine whether a dwelling is considered a townhome or a semi-detached home.
Advantages Of Investing In Multifamily Real Estate
There are quite a few advantages that you might want to consider if you’re thinking about getting into multifamily real estate investing. Here are some of the key advantages to consider:
Easier to Finance:
One of the downsides of multifamily real estate investment that we’ll talk about in a moment is that the properties tend to cost more than a single-family home would. However, there are also a lot more financing options that come with multifamily real estate depending on the kind of property you’re considering.
Banks are also more likely to approve loans for this kind of property because of the high potential for monthly income coming directly from the property. Foreclosures on these properties are also less likely because of the income that comes with them.
Rapid Growth Potential
If you’re looking to grow your real estate investment portfolio, these kinds of properties make that easy. You can easily roll the profits from your first property into the capital you need to buy a second and then a third property, increasing the size or potential profitability of each as you go.
As you expand your real estate empire you can either sell your starter properties, or keep them, depending on your investment strategy and how much liquidity you need in your assets.
You Have Control Over Management Decisions
As the direct owner of a multifamily property you have a lot more control over what happens with that property compared with passive real estate investing or other investment strategies.
You can, of course, hire a property manager if you don’t want to find tenants and perform maintenance yourself. But even with a property manager, the management strategies you use, and final decisions on repair, maintenance, and renovations are still in your control.
That means that you can more directly manage risk and that you have a lot more control over your money compared with other real estate investment strategies.
It’s Harder To Lose All Your Rental Income
The other big advantage to having a multifamily property in your real estate portfolio is that you’re much less likely to lose all of your income from that property at any point. Single-family homes can take time to rent between tenants, meanwhile, the entire mortgage and all maintenance and miscellaneous costs are still your responsibility.
With multifamily housing, once a building has reasonable occupancy for its size, you’re much less likely to lose your tenants all at once. Moreover, many rental agreements now include warning the owner when you are going to leave, which gives you even more time to find a new tenant before the old lease expires.
Disadvantages Of Investing In Multifamily Real Estate
There are some disadvantages to these kinds of properties as well, but cost is the main one.
A multifamily property will almost always cost more than a single-family property, both in upfront costs and in maintenance, especially if you have a maintenance emergency like a frozen pipe or a fire inside the property.
That means that you need to have more money available to cover those expenses, and more money available in the first place to secure financing to buy a property.
The other disadvantage is that you may have more problems renting individual units in this kind of property if the market changes. Downturns and accelerated growth in your area can both post rental challenges depending on the type of property you own, and the condition and amenities you offer.
Ready To Get Started Investing In Multifamily Housing?
There are a lot of things to consider, and a lot of potential pitfalls if you’re looking at getting into multifamily real estate investing. But there are also a lot of advantages and tremendous growth potential for the right kind of investor.
If you think that might be you, there’s good news. You don’t have to go it alone. The experts at Teifke real estate can help you find the perfect property, give you strategy advice, and help you navigate the world of real estate investing until you’re confident in your ability to be a successful real estate investor.
There’s no time like the present, contact Teifke Real Estate and schedule your investing consultation, today!
- Jr. WC. 3 reasons to invest in multi-family real estate. Investopedia. https://www.investopedia.com/articles/personal-finance/041216/3-reasons-invest-multifamily-real-estate.asp. Published February 8, 2022. Accessed January 16, 2023.
- Real estate investing: How to get started. Real Estate Investing: How To Get Started | Rocket Mortgage. https://www.rocketmortgage.com/learn/real-estate-investing. Accessed January 16, 2023.
- Understanding owner-occupied properties. Understanding Owner-Occupied Properties | Rocket Mortgage. https://www.rocketmortgage.com/learn/owner-occupied. Accessed January 16, 2023.