Is multifamily good for Those Starting?
For those that are looking to begin in the realm of investing, there is always that chance you may go with multifamily. Is it the right option for you? Well, there are some pros and cons to each, and this post will discuss some of the pros, and the cons of each of these as a first time investment.
The biggest benefit actually is the cash flow. Since there are lots of units, you get a better cash flow. There isn’t necessarily a better ROI, but the cash flow works since you’ve got cash coming every single month. For a single family, you may not get as much.
Then there is the fact that there is one lawn, one roof, one water heater of HVAC, and you don’t have to go to a bunch of places. In essence, everything is maintained, but if you’ve got a lot of single family homes, they can be scattered, and you’ll need to take care of more of them
They’re also rarely vacant. While single family homes can be, multifamily rarely is ever fully vacant, so you’ve got better cash flow, and you can prevent theft and vandalizing. It may not be the case with single family homes. Lots of times they can be empty for a while. Plus, these are easier to get tenants for, and if you have a lot of hem, it’s often much easier. A commercial and single-family, not so much.
The living in the units is also a good advantage for those trying to do this. You can get similar loans for smaller buildings as you can for a single family home. Plus, if you live in the unit, you can count the income on your loan application, which can help with property acquisition.
There are some cons though. The biggest one is that they’re much harder to finance. These multifamily properties with at least five units often are different when they come to financing. They’re considered commercial, and it can be harder to acquire, since you’ll need to pay a larger down payment and an interest will be higher. The terms for the loan are shorter and they usually do require a form of a balloon payment, which could be hard for a newer investor.
Plus, if you’re ever looking to sell, it’s much more difficult. Here are less buyers out there for one of these than there are single family. Almost all of them are in essence investors wanting to make a deal, so unless you add value or increase rents, you won’t be able to get a bunch of gains, or get out quickly.
There are also more people problems. Multifamily properties have more tenants, which can commonly mean that there will be more problems. You should expect the people problems to grow a whole lot more when you go the multifamily route, and you should expect different types depending on the property class. Higher and lower end of each of these tenants involve different problems.
Finally, it’s not passive. It’s actually a business. Are you ready to be the accountant, police officer, psychologist, and contractor? Are you ready to handle lots of people and varying problems? If the answer is no, you’ll want to hire a management company to help with this, which in turn can cost you money, so you need to be careful with this type of thing, and you need to consider that con whenever you’re looking to get into this type of business.
For many people, going multifamily may be a solution, but it also may be something that doesn’t work for you, and you may end up creating problems later on. Be smart, and if you feel like you can handle this, really look at the logistics of this. If you don’t feel like you can, you should probably stick to single family, and if anything, partner up with another investor if you really want to do this, see if it will work for you, and sometime down the road, see if it’s a fitting thing to make sure that you have the place set up, and to have a multifamily property later on.