As their names suggest, single family homes are designed to house a single family, and multi-family homes are designed to house multiple families, usually indifferent, segmented units.
In a duplex, you typically have a single building bifurcated so that two different families can live in two different sections. Triplexes and fourplexes are similar. There are also apartment buildings, which allow you to have many different units in a single complex.
Investing in multi-family properties can be highly beneficial for your real estate investing strategy. But there are also some drawbacks and caveats you’ll need to keep in mind. If you’re investing in these types of properties for the first time, it’s important to know what you’re getting into.
Benefits of Multi-family Properties
Let’s start by taking a look at the benefits of multi-family properties as they compare to single family properties. No matter what type of rental property you invest in, you’ll see the benefits of passive income and (ideally) property appreciation over time. But these are the distinct benefits of multi-family properties:
- Higher income. Each family in your building is going to pay you rent, meaning you’ll usually see much higher income in a multi-family property. Think about it this way. If you have a single-family home, you might be able to charge $1,500 per month in rent. If you have a triplex, you can have three different families each paying $1,200 per month in rent, ultimately generating $3,600 in monthly revenue. As you scale this strategy up, your revenue and profitability should scale proportionally.
- Greater stability. Generally, multi-family properties have much greater stability than their single-family counterparts. That’s because if you lose a tenant in a single-family property, you’ll be entirely without income; if you lose a tenant in a multi-family property, you’ll still have families in other units to help you pay the bills. Your income won’t be as volatile, and you’ll bear less financial risk in this respect.
- Centralization. Some people also appreciate the benefit of centralization that multi-family properties offer. If you want to expand your property portfolio eventually, you could hypothetically buy multiple new single-family properties, one at a time. But doing this introduces new logistical and management complexities. In many ways, it’s easier to manage eight units in one location than eight different properties in different locations.
Downsides of Multi-family Properties
That said, there are some downsides you’ll need to keep in mind as well.
- Higher costs. As you might expect, multi-family properties tend to be more expensive than their single-family counterparts. If you have a building with three units, it could be up to three times as expensive as the single-family equivalent. You’ll also see increased maintenance and management costs.
- More maintenance. Because each unit will require at least some maintenance of its own, maintenance tends to be much more difficult when working with multi-family units. Keeping up with repair requests and keeping the property in good condition are major challenges.
- Additional complexities. There are many types of multi-family properties to consider, but all of them introduce new complexities to your property management strategy. For example, if you have a single noisy tenant, the entire building may be affected.
Important Tips for Maximizing Results From Multi-Family Properties
So how can you maximize the benefits while minimizing the downsides of these types of properties?
- Prioritize the location. As with other types of real estate investing, location should be one of your most importantly considered priorities. If you choose a multi-family property in a good location, you’ll benefit from better tenants, higher rent prices, less competition, and fewer headaches overall. Finding a good location can be tough, and even then, you’ll have to contend with competition – but it’s all worth it if it means getting the right property.
- Screen tenants thoroughly. Difficult tenants are always a problem, but for the most part, you can avoid these issues by screening your tenants thoroughly. It’s tempting to fill your properties as quickly as possible, but it’s usually better to take your time, do thorough background checks, and weed out candidates who aren’t likely to be a good fit for your property or community.
- Focus on tenant retention. Once you do find good tenants, focus on keeping them. People who invest in multi-family properties sometimes get overconfident because multi-family properties are less susceptible to income volatility. However, it’s still expensive when tenants leave prematurely. You can prevent tenants from leaving by building good relationships with them, responding to requests quickly, and offering support when warranted.
- Hire a property manager. Properties get more complex when you add more units to them, and if you have a portfolio with many multi-family properties, your management responsibilities could quickly become overwhelming. That’s why it pays to hire a property management company that can take care of almost everything on your behalf.
- Upgrade, improve, and prevent. When you purchase a new multi-family property, spend some time upgrading, improving, and updating it. Your goal is to put the property in excellent condition, so you prevent the majority of functional problems you might encounter in the future.
- Consolidate your maintenance plans. Practicing maintenance in multiple multi-family properties is time-consuming and complex if you don’t have a thorough strategy in place proactively. Make sure to consolidate your maintenance plans so you can prevent most problems – and fix the unpreventable ones quickly.
- Diversify your portfolio. Finally, work on diversifying your portfolio. It pays to have many different types of properties from many different areas in your possession, so you’re better insulated against economic volatility.
Multi-Family Properties – The Perfect Fit
Are multi-family properties the perfect fit for your investment goals and your budding real estate portfolio? Or are you leaning toward single family residential homes? Whatever your property management strategy happens to be, we have professionals who can support you.
Contact us today to find out more about how Green Residential can improve your real estate investing strategy!