Pros and Cons of Multifamily Real Estate Investment
Multifamily Real Estate is brimming with potential, but is this investment the right one for you?
The best way to know is to match your needs with the nature of the investment. Ask yourself about your priorities. Is it more important to have a steady cash flow or to have the ability to scale your investment in the future? How much of a risk are you willing to take on?
As the name suggests, Multifamily Real Estate refers to properties that can house multiple families. It holds individual rental units that combine to form an apartment or a series of units within a complex. Many take an interest in these passive income properties because of the potential for high returns and the comparatively low risk. Are you considering adding multifamily to your investment portfolio? Here is a checklist of pros and cons to help you decide.
PROS - Why It’s Worth Your Investment
Reliable Cash Flow
One of the best things about Multifamily Real Estate is the reliable cash flow. Once tenants have signed with your property, you can expect a steady income from rent payments. Demand is also not a problem; there is always the need for affordable housing regardless of market conditions.
Some also take advantage of the multifamily investment to help pay their mortgage. These investors reside in the same property and lease part of their property to cover their monthly payments.
When it comes to your involvement in the process, you can choose between taking on a passive or active role in multifamily investment. If you’re comfortable with managing tenant concerns and property upkeep, you can choose to be an active investor. Many would prefer the passive income route only because they can rely on real estate professionals called “General Partners'' to deliver the return they need, without the landlord's concerns.
Multifamily real estate investment becomes even more attractive in states with investor incentives. Texas, for instance, attracts many investors as it imposes zero income tax. That’s your full earnings straight to your pocket.
You can benefit from reduced tax obligations, as the money you invest in operational and maintenance costs such as repair, property management, and mortgage can be deducted from your tax dues. Real estate is known for its tax incentives. With the right team, you can maximize these to get the most value from your investment.
Potential to Scale
Going from your first to your next property is much simpler under Multifamily Real Estate versus Single Family Properties. With multifamily, you get to share ownership with other investors and work closely with experts in the field. That means almost no worries over keeping and growing your property. Even more, blanket options for securing loans and insurance are available for Multifamily Real Estate, streamlining the process to scale your investment.
On the other hand, owners of Single Family Homes would need to multiply their effort and capital to the number of properties they’d like to acquire.
CONS - What to Watch Out Before You Invest
High Competition & Cost
Where there is a big opportunity, there are many interested parties. The same is true for Multifamily Real Estate that’s fast becoming a popular choice among passive investors. You will have to consider which property matches your investment capital and expected income.
Multifamily Properties also cost more than single properties because of their size and the value they create. Expect a higher down payment for this type of investment.
Labor Intensive Investment
Having multiple units means having multiple property requirements and tenant needs. This type of investment requires dedication to ensure that these properties will be maintained, upgraded when needed, and always kept at a great standard for renters. Is Multifamily Real Estate Investment for You?
As with other investments, you will need to keep track of your investments to stay on top of the competition. That is why many investors hire an investment partner like Makaan Investment Group to manage their investment and cash flow effectively.
By working with a general partner, you can skew towards the advantages and eventually outweigh the cons of this type of investment. Our clients, for instance, have enjoyed stable income through multifamily investment in Houston, Texas, even with unexpected market fluctuations.
Talk to us today to discuss your real estate investment options.