Making Money with Multi-Family Units

The benefits of owning multifamily rentals

Competition is less fierce for purchasing multifamily units, since flipping and foreclosures are rare occurrences on these properties.

  • Price per square foot is usually comparable between multifamily and single family units.
  • Typically, multifamily units come with renters already occupying the space, which means immediate cash flow.
  • If an apartment unit is vacant, there is still income from the other units. But in a rental home all of the income is lost during a vacancy, and the investor’s IRA must carry the mortgage payment.
  • Managing 10 apartments on one property is more efficient than 10 houses on 10 properties.

Purchasing power

For financing reasons, it is important to know the different classifications of multifamily units. Residential multifamily includes two to four units, and commercialmultifamily involves five or more units. Residential properties are easier to finance than commercial. Mortgage companies require 20% down for investment properties of all types (meaning the owner will not reside on the location). Recently, the mortgagors decided to embrace flexible funding methods on residential properties, like taking out a second mortgage to pay part of the down payment. Just like other residential property purchases, the investor can get a lower interest rate on a fixed-rate loan. Commercial property loans still require 20% down and are usually an adjustable rate mortgage (ARM) with a higher interest rate. On the other hand, larger apartment complexes are able to earn a higher return on investment (ROI); so if your retirement account has the cash, then both residential and commercial can be good investments.

Direct ownership (that held by the individual as opposed to a collective ownership) is an attractive strategy in real estate acquisitions for larger complexes (10 to 100+ units). This may be appealing for an individual (or perhaps an affinity group, such as family members or professional colleagues) seeking direct ownership in a multifamily (apartment) facility. The larger the facility, the greater the potential ROI is.