Is it Worth Investing In the Multifamily Real Estate Industry?
Multifamily housing is defined as “a dwelling unit or group of dwelling units that is used or intended to be used as separate living quarters.” The term refers to apartments, condominiums, townhouses, and co-ops. The construction of multifamily units have doubled in the United States since the last decade and this trend is not expected to change anytime soon.
Why are developers so interested in building new multifamily homes? Because people are buying and investing in multifamily homes! They see potential of wealth generation and incredible passive income when they see multifamily real estate investments.
Why are Multifamily Homes worth Investing In?
The multifamily apartment sector has been growing steadily over the past five years, with 2016 seeing a 3.6% increase in rental rates, according to the National Multifamily Housing Council (NMHC). In addition to this steady growth, there are several factors that make multifamily housing investment an attractive opportunity for investors:
- High Return on Investment (ROI)
The ROI on multifamily properties is strong. Multifamily properties have a higher return than single-family homes, and that’s because they require less maintenance and are easier to manage. As an investor, this means you get a high amount of rent with less effort.
Multifamily real estate investing also carry less risk than their single-family counterparts because there are multiple units under one roof instead of just one home. If one unit doesn’t do well financially, it won’t significantly impact the overall value of your portfolio as a whole like it would if the home were all by itself in the suburbs somewhere. This provides investors with greater flexibility when choosing which properties to buy or sell; they can focus on those that will yield better returns without worrying about losing money overall due to poor performance from other units owned elsewhere (or even within this same building).
- Low Vacancy Rate
When you invest in multifamily properties, you have the potential to have a lower vacancy rate. This means that there’s higher demand for multi-unit housing and less competition, which could lead to lower rates than single-family homes. Tenants are attracted to homes that provide numerous facilities at a reasonable rent – something that can be easily achieved with multifamily apartments! With fewer vacancies, your cash flow will be higher and your return on investment will also be increased.
- Steady Passive Income
Multifamily properties also allow you to create a “hidden” passive income stream. This means that after investing in multifamily homes, you have a property that generates revenue from its monthly rent payments, but you don’t have to be there to actively look after it. You can simply collect the checks and let someone else manage the property for you – which is a great way to earn extra income while traveling, working on other projects or just enjoying some much-needed time off.
- High Cash Flow
Cash flow, or the amount of money that comes in and goes out of a property, is an important metric for investors to track. It determines how much you can borrow from banks and other funding sources, as well as how much you can afford to make a multifamily housing investment and improve your property. The higher your cash flow, the more money you’ll have on hand to make improvements or renovations and pay mortgages to your lending institution.
You can calculate cash flow by subtracting your monthly expenses from your monthly revenue (rents). If this number is positive, meaning that there is more money coming in than going out, you are generating positive cash flow. The opposite is true when there’s negative cash flow – you spend more than what comes in each month. A low-risk way to increase your cash flow is by increasing the rents of existing properties; however, it may be easier said than done if good and responsible tenants are already paying high rents for those properties! A multifamily investing course is perfect to help you analyze everything related to multifamily real estate.
- Safety in Numbers
Safety in numbers is a principle that dictates that the greater the number of tenants in a building, the lower the likelihood of a crime being committed. This is because when you have more people around, it’s more difficult for someone to commit crimes without being seen or heard by one of their neighbors. Investing in multifamily homes can significantly reduce your chances of having to deal with break-ins, vandalism, and other issues that could otherwise be disruptive to your day-to-day operations.
While there are no universal guidelines dictating how many tenants should be living in one property before you experience this added sense of security, larger buildings tend to provide better protection than smaller ones due to increased foot traffic on each floor, making it harder for criminals to sneak past residents unnoticed.
Capital Appreciation and Scalability
The United States Census Bureau estimates that the number of renters will continue to increase over the next few years, which means that there will be more demand for affordable housing. This increase in demand will lead to greater profitability for the multifamily real estate investing industry as the rents will also increase.
Rising rents mean that there is an increased likelihood of capital appreciation over time. The longer an investor holds onto their property in this sector, the more likely they will see high returns from their initial investment. This profit can be used to invest in multifamily properties at another lucrative location, and eventually generate an impressive earning potential!
The multifamily apartment industry is a niche that has grown steadily in recent years. The industry has been able to attract investors by offering them high returns on their investment and steady growth. However, there are risks involved with this type of investment and they should be taken into consideration before making any decisions. Nonetheless, it is more profitable and secure than investments in other assets.
If you want to learn more about multifamily real estate and why you should invest in these properties, get in touch with The Multifamily Mindset! It is an education company that helps new and seasoned investors close profitable multifamily investment deals. You will find helpful informative resources like blogs written by real estate expert Todd Millar and daily podcast sessions. Make a name for yourself in the multifamily apartment industry with The Multifamily Mindset!
Multifamily real estate investing is totally worth it and you should invest too!