If you want to diversify your portfolio and accelerate your gains, real estate investment is the way to go. There are several categories from which to choose: residential, commercial, industrial, and retail, to name a few. While each category has its advantages, my personal favorite and the category that I find most lucrative and that fits nicely into my lifestyle is residential real estate, specifically multifamily. I’m often asked why I prefer multifamily, so I thought listing them here would be a good idea.
The multifamily category covers several scenarios including duplexes, condominiums, townhomes, and apartment buildings—basically, anything that has the ability to house more than one family, hence “multi.” Therefore, as the owner, I have the advantage of receiving revenue from multiple tenants as opposed to a single stream of income from one tenant as it would be with single-family housing. As you can imagine, this exponentially increases the cash flow generated from the property, proportionate to the number of units (or doors) contained within the property.
Multiple Benefits of Multifamily
So now, you have consistent monthly cash flow, but what happens if your occupant moves out? Not much, actually. Unlike with single-family real estate where if the unit becomes unoccupied your cash flow ceases, with multifamily, if you have a vacancy, you still receive the cash flow from the remaining units. Multifamily real estate also tends to offer a variety of size, pricing, and amenity options meaning you have a wider pool, or potential tenants, which helps with occupancy, and the more units a property has, the more diluted the cash flow hit will be from any vacancy that might occur.
In the event you decide to sell, multifamily has the upper hand as well. Because of its ability to produce cash flow, it will automatically be valued at a higher price than single family. One could argue that you also paid more than single family, but at the time of sale, you’ll have the benefit of appreciation in addition to any increase from capital improvements. Additionally, assuming you chose an area of projected growth when purchasing the property, you would have experienced a higher than average appreciation rate. So after all is said and done, you have the profit from the sale on top of the cash flow accumulation from the duration of ownership.
There are other factors that can affect the cash flow from multifamily-management fees, economic factors, housing prices, just to name a few. Ultimately, though, everyone needs a place to live, and multifamily is affordable for tenants and profitable for investors.
If you’ve invested in real estate, what are your thoughts? Do you have a preferred property type other than multifamily?