Multifamily investing is a popular real estate investment option for many. In fact, multifamily units account for around a quarter of the U.S. footprint with more than $5 trillion dollars in asset value. There is a lot of multifamily investing going on and many people are taking advantage. If you are considering such an investment, particularly in Virginia, there is a lot to learn about and research.
When we are busy overseeing Northern Virginia property management of multifamily homes (including Richmond, Baltimore, D.C., and nearby cities), we know there are unique considerations for investors. It’s a different ballgame than single-family homes. First and foremost, that needs to be acknowledged. So we thought we would get into what makes multifamily investing unique and the various considerations you would need to keep in minding when heading down that path.
Table of Contents
- Pros and Cons of Investing in Multifamily Homes
- Types of Multifamily Housing
- Hire Property Managers to Help
Pros and Cons of Investing in Multifamily Homes
Let’s go over some of the benefits and drawbacks to this particular type of housing ownership. It is good to go over many of the basic pros and cons just to see if there are ones that stand out for you.
Pro: Cash Flow
One of the biggest benefits of multifamily investing is the opportunity for passive cash flow. Monthly rent checks make a difference for many who want to see that come in and create that flow of money. People always need a place to live, which means people who need rentals. This makes rental payments a steady income stream. The rental market for multifamily properties has historically been very healthy. Many investors take advantage of this.
Pro: Tax Benefits
Investing in multifamily property can provide investors with a number of tax benefits. One of the main benefits would be depreciation. The IRS allows investors to depreciate the cost of rental property. Depreciation enables investors to regain the value of the property’s physical structure and reduce their yearly tax liability. The more an investor or homeowner can depreciate in a year, the more potential tax benefit there is.
Pro: Scalable
Multifamily investing can scale an investor’s portfolio by two or more units at a time, allowing them to boost their cash flow overall. When an investor can scale their portfolio – and quickly – it enables them to grow their wealth faster than they could with a property that only brought one source of rental income. Basically, it’s reinvesting part of your earnings into making more money the next year, which creates a snowball effect.
Con: Market Risks
There are some inevitable risks in almost any investments, and multifamily housing is no different. One of the main drawbacks of multifamily investing is the presence of market risks. All housing is subject to market risks, which take knowledge to understand and research to analyze. Factors like local rental demand and vacancies, general population growth from one area to the next, and current (and future) rental rates may impact an investor’s rental income. There are many potential drawbacks to any investment opportunity.
Con: Financial Risk
The cost of a particular investment can be a significant barrier in real estate. This is certainly the case for multifamily homes. They are typically significantly more costly to acquire than single-family homes. Investors usually need to save more money as a down payment for a multifamily property or find alternative means such as loans of all types.
A multifamily property also becomes a financial risk if the investor wants to sell. There are generally much fewer buyers for multifamily properties, so eventually selling that property could become a liability.
Types of Multifamily Housing
It can be helpful to go over the varied types of multifamily homes to understand what the options are when investing. Here are a number of the most broad and basic categories.
- Apartments – Apartments are usually owned by a single entity, with each unit rented out to residents. Apartments can be some of the most affordable places to live and can be a great resource of affordable housing for many, though some can be more “upscale” in urban areas and in some neighborhoods.
Condominiums – The ownership of a condominium is divided by each unit. Many times, condo communities are built with a specific lifestyle focus such as seniors or working professionals. Condos are often a good choice for investors seeking the stability and financial benefit of home ownership, but also the low maintenance and amenities of multifamily communities.- Mixed-Use – Mixed-use development generally means combining residential homes with commercial, retail, or entertainment spaces. These developments offer residents the luxury of convenience – they can be very close to all kinds of locations that people would appreciate – while at the same time, they may have various drawbacks to privacy or space.
- Student Housing – Multifamily housing that is near college campuses has all kinds of benefits and drawbacks. Having the luxury of always having college students flowing through your neighborhood is helpful for finding tenants, but it also comes with its own set of expectations.
- Age-Restricted – These neighborhoods most often focus on building social engagement and offering a wide variety of lifestyle amenities, since they typically cater to residents ages around 65 and older. Similar to student housing, multifamily investing of this kind has all kinds of considerations.
Hire Property Managers to Help
At the end of the day, weighing the pros and cons of multifamily investing is deeply personal and should align with your overall investment goals. You will need to carefully evaluate your current lifestyle, financial situation, and future aspirations before making a choice. In the meantime, consider getting advice from the experts!
At Bay Property Management Group, we know the ins and outs of how to make multifamily houses work for many investment portfolios. We’re here to help you! Whether you’re a potential investor, landlord, or property manager, we’re here to support your property management in Northern Virginia, Baltimore, Richmond, Boston, Washington D.C., and many other locations. We can help you make a decision that best suits your real estate needs.
