All About Multifamily Investing


The multifamily real estate market remains one of the more popular investments for investors who want to take an active role in building their capital. Instead of passively handing over their money to a fund manager running a real estate investment trust or investing in individual stocks, multifamily investors use one of several investment strategies to build real cash flow. Instead of hoping for the price of a stock to rise or waiting for companies to declare dividend payments, real estate investors strategically use multifamily properties to build passive incomes from monthly rents or a steady appreciation in the value of the properties.

A Closer Look at Multifamily Properties

The definition of a multifamily property is a building consisting of two or more housing units that are adjacent to each other either horizontally or vertically. What is important about the definition for multifamily investors is each housing unit counts as a separate unit. Therefore, when real estate investors buy multifamily properties, each separate housing unit generates cash flow from monthly rents. Many successful real estate investors target multifamily properties since they contain multiple rental spaces, which increases cash flow and return-on-investment, also known as ROI.

Types of Multifamily Properties

There are several types of multifamily properties for real estate investors to add to their investment portfolios. Each property generates cash flow in their own way, so it is essential to briefly define the various types of multifamily properties.

  • Mixed-Use Buildings- These buildings serve multiple purposes and investors can rent them for commercial, residential, institutional or industrial uses.
  • Duplexes- A duplex contains two separate residential housing units in one building. The units have their own entrances and typically don’t share any common areas.
  • Triplexes and Fourplexes- As the name implies, these buildings contain three to four separate housing units.
  • Townhouses- Townhouses sometimes mimic detached homes since they’re individually owned; however, townhouses are normally attached to each other with their own private entrances.
  • Apartments- Most apartments fall under the multifamily category, and many real estate investors target apartments for their monthly cash flow.

Multifamily Investment Strategies

Real estate investing remains a popular investment vehicle since there are multiple strategies investors can use. Some investors design and build multiple commercial and residential properties, and other investors slowly build their portfolios by acquiring rental properties that generate monthly income. Other real estate investors buy properties in disrepair for pennies on the dollar so they can renovate them and quickly put them on the market. However, most real estate investors buy multifamily properties so they can generate more cash flow from monthly rents.

One strategy multifamily investor’s use is to search for rental properties in towns and cities experiencing new job growth that is above the national average. When towns and cities start to add new jobs, the demand for rental properties exponentially rises. Although demand for rental properties decreases available inventory, savvy investors seeking multifamily investments find towns and cities with an expected increase in new job growth or are in the early stages of new job growth.

Housing inventories usually remain strong in cities during the early stages of job growth until it starts to reach its peak. By the time inventories start to fall, savvy investors already acquired their properties prior to the fall. The key to generating more monthly cash flow using this strategy is when rental inventories start to fall in a city experiencing rapid job growth, the need for rental properties rises causing an increase in monthly rents.

Multifamily Investment Outlook

The outlook for multifamily investing remains strong. Some experts feel the multifamily sector will remain appealing to investors as more Millennials enter the job market and start to seek out rental housing. Other experts feel that the multifamily sector will experience continued growth if consumers continue to shy away from buying a home. A slow economy and strict mortgage eligibility requirements keep many consumers from buying a home and turning instead to the rental market. However, rising rents in multifamily properties could price many consumers out of the market, which would stall any growth in both the commercial and residential rental sector. This is not to say that will occur, especially if average wages continue to rise in the U.S. along with rising rents.

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