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Multifamily Strategy

Multifamily Strategy

Owning a multifamily property is a huge asset to your portfolio, cashflow, and the resell value is a plus for a new investor. Let’s look into why this is an awesome strategy to consider.


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Multifamily is a great strategy to add to your portfolio as an investor. When looking at multifamily property, in most instances, you want to be in a high traffic area, close to a hospital, business district, shopping, schools, or universities. If you had a duplex, you could live on one side, manage, and rent the other side out. The goal would be to let the other half cover the largest portion of the mortgage so that you are living almost mortgage free. When getting a mortgage for multifamily, a duplex, triplex or a quadruplex would be considered investor financing in most cases. When you go to four units or more, they consider a commercial loan and they’re looking to have more money down than owner occupied or investor financing. Of course, there’s exceptions to that.

With home prices escalating to historical rates, having a rental property that is multifamily can be a huge plus. A duplex is a two-family rental property, a triplex is a three-family rental property, and a quadruplex is a four family. Once you go to five units you’re dealing with commercial real estate, and different regulations for lending purposes. Multifamily properties can reduce your risk when you have additional cashflow coming in from the units. A single-family vacancy can be a small setback if you have a four-family unit. The negative effects are minimized if you have three other units that are bringing in revenue. Management becomes a lot easier as well. You have one location with multiple family units living at the same address. For additional income you could also have a stack washer and dryer that is coin operated, vending machines can be set up for selling soft drinks, laundry soap, etc. for additional revenue sources that could be used in a common areas.


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In an urban area, a multifamily unit on the second and third floor with a storefront on the street are excellent opportunities for investors. In a downtown area parking is always a consideration, that could also be an item that you charge for a parking spot. With single-family home prices as high as they are in most states there will be a shortage of quality rental properties to choose from or that people can afford. This is a huge opportunity for real estate investors in any economy. Whether you’re a new or a seasoned real estate investor, multifamily should be considered in your business plan and portfolio due to the cashflow opportunities.

All over the United States there are small apartment complexes like a 12, 16, or 22-plex. An excellent exit strategy could be to convert the apartment complex and sell them off as single-family town homes or condos. There could be requirements in your state to apply, pay a fee and you’ll receive condo documentation. So, the legal description would have the previous apartment complexes legal description and it’s the state will approve adding unit 101, unit 102, unit 103. Knowledge is power, don’t limit yourself, there are several possibilities out there for investors and you need to know how to structure the deal and think outside the box

One of the best aspects of investing in multifamily properties is when you sell. A property buyer will look at the capitalization rate. The property has been increasing rents and saving money on expenses, so you increase the value of a property. As an example, a five-capitalization rate on a property which is not very high, for every dollar per month of additional income or cost savings that dollar is worth $240 annualized in the value of the property. So, investing in a multifamily can yield you a major amount of money when you’re selling the property if you position it correctly. When selling a single-family home obviously you can make a nice profit but with interest rates going up the number of buyers is somewhat reduced. With multifamily properties more and more people are going to enter the rental market in the coming years and it’s an excellent way to improve your portfolio and ROI on your exit strategy.

Areas of Review

Takeaway

Big picture takeaway points

  1. Think outside the box and don’t be afraid of multifamily properties.
  2. Capitalization rates are important when it comes to multifamily.
  3. You want to be in a high traffic area.

Reflection

Self-reflection questions to think more about the content

  1. Multifamily is scary to me because of the risk, but what if I got educated to reduce that risk?
  2. Could I qualify for a bigger loan/mortgage?
  3. I’ve stayed away from multifamily units because…

 

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