Consider the positives and negatives of multifamily housing that commercial realtors typically see so you’ll know what to expect if you choose to invest.
Multifamily Real Estate Investing - The Pros
There are a lot of great reasons for anyone to get involved in commercial investing with multifamily properties.
The biggest benefits that commercial realtors see their clients appreciate include most of the following:
- Tax Advantages - As with other commercial real estate, when you invest in multifamily properties you gain the ability to deduct maintenance costs, insurance fees, and some mortgage interest each year. Multifamily residential properties also depreciate faster than business properties, which can allow you to reshape your investment structure sooner without tax penalties.
- High ROI - Multifamily housing gives you a good balance of income-earning potential with lower investment risk. These properties give you continuous cash flow while they appreciate, translating to a higher return on investment.
- Easy Property Repositioning - By reinvesting some of your profit back into your multifamily property, you can easily reposition it and earn even more. Improvements that raise Class B or C properties into more desirable Class A and B spaces can bring in higher rents.
- Easy Management Options - Owners of multifamily housing can choose whether they’d like to maintain these properties on their own, hire a management company to do it for them, or work together with a management firm. You have total control over who does what to keep properties in good condition so the rent keeps coming in.
Multifamily Real Estate Investing - The Cons
There are definite negative to commercial investing in multifamily real estate.
As long as you're aware of the challenges from the start, you can still do well with this type of commercial real estate:
- High Competition - Due to the many positives of investing in multifamily properties and the demand for these residences, many people invest in them. From existing buildings and complexes to new housing construction, it's important that you do a careful assessment of your local market with commercial realtors so you get into the market with the right property.
- Hard to Finance - Sometimes single investors can have trouble finding financing for these types of property. Commercial lenders may require a higher down payment of 20% or more as compared to the usual 10% required to finance many other properties. Fortunately, there are some lending agencies that specialize in financing multifamily housing.
- Low Liquidity - Liquidity is the ability to convert an investment to cash. As great as multifamily housing can be in other ways, they are hard to liquidate. This is something that must be kept in mind when planning investment portfolios and exit strategies.
- Notable Risks - There are risks incurred with every type of commercial investment. The biggest risks in multifamily real estate are things like changes in neighborhood demographics, maintenance problems that affect the whole facility, tenant problems, and others.