Whether you’re a newbie or an experienced investor looking to invest, chances are that you’ll consider multi family rental properties for sale.
Table of Contents
- Is Buying a Multi Family Rental Property to Invest In Worth It?
- What Is a Good Cap Rate For a Multi family?
- How to Find Multi Family Rental Properties for Sale in Minutes
Multi family property investments offer investors many benefits, including consistent income, straightforward management, tax benefits, and many others. For starters, multi family properties refer to residential properties that contain more than one unit. Common examples of multi family properties include duplexes, triplexes, condos, townhouses, and apartment complexes.
Multi family properties make excellent investments since you can choose to live in one of the units and rent out the rest. This strategy is commonly referred to as house hacking.
In today’s blog post, we will look at whether multi family rental properties for sale are profitable and how you can find lucrative multi family listings in minutes.
Is Buying a Multi Family Rental Property to Invest In Worth It?
Investing in multi family property investments is worth it since it comes with a lot of benefits. Let’s break down the advantages to understand them better.
Cash Flow
One of the most significant benefits of multi family real estate properties is the monthly cash flow they generate for you. Such types of properties serve as a reliable income stream since you have tenants making rental payments each month.
With single-family properties, you only have one tenant. If your tenant moves out, you can experience a dry spell, especially if your house remains vacant for an extended period. On the other hand, with multi family properties, you have multiple tenants paying monthly rent. Even if one unit stays vacant, you still have an income from two or more tenants.
The best thing about multi family rental properties for sale is that it’s an excellent way to generate passive income. You can hire a property manager or management agency to take care of all the daily tasks for you. It is especially beneficial for those with no experience in such types of properties or those who want to take a back seat and make money without lifting a finger.
However, there isn’t a guarantee that you’ll make a good monthly income just because you’ve invested in a multi family property for sale. There are some factors that you must consider before investing. We’ll be looking at them later on.
Related: How to Maximize Real Estate Cash Flow
Easier to Get Financing
Acquiring a multi family property, in most cases, is costlier compared to buying a single-family unit. For example, buying a single-family unit can cost as low as $30,000 while purchasing a multi family investment can go up to the millions.
To most people, it might make sense for banks to love financing single-family properties over multi family ones since they’re cheaper. However, it isn’t the case. The truth is that your loan is more likely to be approved if you’re purchasing a multi family property than a single-family unit.
It is for the simple reason that multi family properties provide a more predictable income. As we’ve said, such types of properties will ensure you have an income even when there are a few vacancies or late rental payments.
For example, if you own a multi family property with four units and one tenant moves out, your rental income only drops by 25%. It makes multi family properties less risky for lending institutions.
Leverage
Another essential benefit of multi family properties that is related to accessibility to financing is the benefit of leverage. In real estate, leverage is the ability of an investor to move cash without many hiccups.
For example, if you desire to purchase $1 million worth of stocks, you must have $1 million cash in hand. On the other hand, if you want to purchase a multi family rental property worth $1 million, you only require about $200,000 as a down payment. You can finance the $800,000 balance.
The ability to leverage increases your return on investment since you’ve only invested $200,000. However, keep in mind that you’re also increasing your level of risk since you’re using your asset as security and paying mortgage interest.
Scalability
When it comes to scalability, it’s much easier to grow by adding a number of rental units to your portfolio through a multi family property than investing in one unit at a time.
For example, let’s assume you want to purchase five rental units this year. You can own them all at once by investing in a multi family home with five rental units, which is time-efficient.
Suppose you choose to buy five single-family units. In that case, you need to work with five different sellers, attend five different showings, conduct five different inspections, and carry out many other tasks, making the entire process tiresome. Also, if you’re getting financing, it means securing a mortgage for every property individually.
Multi family properties also give you a kickstart into investing in commercial real estate. It is because larger multi family properties with five or more rental units fall in the commercial real estate category in some cases, offering you even better cash flow potential.
Value Appreciation
In addition to the cash flow, leverage, and tax benefits that attract investors toward multi family properties, some prefer these investments due to the value appreciation potential. While most properties don’t experience a major spike in value immediately, those who hold their assets for long periods get to enjoy a level of value appreciation due to inflation.
That said, investors can also contribute to their multi family property’s appreciation by improving the property’s systems, such as HVAC, plumbing, electrical, or roofing. These aspects can help you realize more yields if you’re looking for higher returns.
Appreciation, along with leverage, makes multi family property investments look mouthwatering. For example, let’s assume you acquired an owner-occupied two-unit property for $500,000 five years ago. Since the property is owner-occupied, you could only put down 3%, or $15,000. The property is now worth $850,000, significantly increasing in value over the years.
Over the past five years, you’ve been able to pay most of the loan and now only owe $200,000. It means you have $650,000 equity in your multi family property, which is a substantial increase, considering you only started with $15,000.
At this point, you can now tap into the equity or leverage it to invest in other properties. Savvy investors often use such a strategy to grow their real estate portfolios.
What Is a Good Cap Rate for Multifamily?
Since multi family properties have lower risk, they also tend to have a lower cap rate compared to other properties. While other properties’ cap rates range between 8% and 10%, a good cap rate for a multi family property ranges from 4% to 10%. It isn’t to say that multi family properties are a bad investment.
The cap rate range is due to the fact that several factors can affect what a good cap rate would mean. In short, a relatively low cap rate could look good, and a good one could similarly look bad, depending on the situation.
Here are some of the factors that influence a reasonable cap rate for a multi family investment:
- Asset Age: Older properties generally cost more to maintain, therefore bringing the annual costs up every year and bringing the cap rate down.
- Location: Some locations have a higher cost of living than others. Factors associated with location, such as property taxes, rental property demand, operating costs, and investor demand, affect what a good cap rate means.
Related: What Does 7.5% Cap Rate Mean in Real Estate?
How to Find Multi Family Rental Properties for Sale in Minutes
Now that you understand why you should include multi family properties in your investment portfolio, it’s time to look at how you can actually find such great investment opportunities.
First, you need to understand that not all multi family properties for sale are equal. If you’re not careful, you can get your fingers burnt. Keeping in mind that there’s intense competition for lucrative multi family real estate, we can say that finding such opportunities can be a struggle at first.
So, how can you spot profitable multi family real estate investment properties for sale in a matter of minutes?
Identify a Lucrative Housing Market
Savvy investors know that investing in the right real estate market will set your investment up for handsome returns. If you can spot a profitable location before investing, then you’re half done with the battle.
One of the most common questions real estate investors ask is whether they should find multi family properties for sale in their city or in another location.
To answer the question, you need to conduct in-depth market research. Generally, you want to invest in a city with amenities, such as hospitals, schools, public transport, restaurants, shopping malls, recreational facilities, and many other amenities.
You also want to pay attention to economic indicators, such as:
- Population growth
- Unemployment rates
- Job market
- ‘Upcoming infrastructural developments
- Property taxes
- Landlord-tenant laws
It looks like a lot of work to do manually. Experienced real estate investors always use data and software tools to streamline their daily tasks. Mashvisor provides reliable and accurate data on our investor blogs to help you find the best markets to invest in. We regularly compile a list of the best markets for investors so that you don’t need to do all the heavy lifting.
Perform Neighborhood Analysis
Once you’ve created a list of some of the best real estate markets for multi family property investments for sale, it’s now time to carry out a neighborhood analysis. It is essential since different neighborhoods may provide different rates of return on investments though they’re located in the same city.
Mashvisor’s Real Estate Heatmap is created to help you efficiently carry out neighborhood analysis. It is an effective market research tool that uses colors to represent various results.
The heatmap tool is easy to use. You simply need to set the following filters:
- Selling price
- Traditional and Airbnb rental income
- Traditional and Airbnb cash on cash return
- Airbnb occupancy rate
Since the map is color-coded, it’s easy to spot the best neighborhoods to invest in the city. The tool lets you narrow your focus down from the city level to individual neighborhoods.
There’s also a multi family filter that allows you to identify neighborhoods with lucrative multi family properties for sale only. With this filter, you’ll know where you should search for lucrative multi family properties for sale in just a matter of minutes.
Mashvisor’s Real Estate Heatmap provides a color-coded representation of a particular neighborhood’s performance based on several metrics.
Conduct Property Search
Now that you’re done with the market-level analysis and research, now we get to the fun part. It’s now time to look for profitable multi family investment property for sale. Your goal is to find an investment property that matches your financial and investment goals.
There are several ways to look for multi family real estate properties for sale. However, some of these methods are inefficient as you might end up wasting a lot of time on properties that don’t match your search criteria. It is why you need to use Mashvisor’s Property Finder.
The Property Finder tool uses machine-learning algorithms and artificial intelligence to help you find high-performing multi family properties for sale based on your search criteria. You can customize your search criteria using the following filters:
- Property location
- Selling price
- Property type (multi family, in this case)
- Optimal rental strategy
- Number of bedrooms and bathrooms
As you can see, the tool will help you narrow down your search to only the best multi family properties in the neighborhood of your choice. You can click here to start your search for lucrative multi family rental properties for sale.
It’s easier for you to carry out an investment property analysis with a few properties on your list, which leads us to our next point.
Carry Out an Investment Property Analysis
One mistake many investors make when investing in multi family properties is letting their emotions take control. Never invest in any property simply because it looks good or you like it.
Your investment decision should be made from objective analysis. Run all the numbers to ensure that the property will help you achieve your investment goals.
You want to find a property with a high cap rate for an affordable selling price. The property should also provide a good cash flow so that you have enough profit left after settling all your property expenses.
Mashvisor’s investment property calculator is the best tool for property analysis. With the tool, you can calculate all key property metrics in a matter of minutes without using spreadsheets that are prone to human error. The key metrics you get from the investmet property calculator include:
- Traditional and Airbnb cap rate
- Traditional and Airbnb cash on cash return
- Traditional and Airbnb cash flow
- Traditional and Airbnb occupancy rate
As you can see, the best thing about our calculator is that it provides key metrics for both traditional and Airbnb rental strategies. Unlike our calculator, most online real estate tools only focus on one strategy. It means that our tool allows you to choose the best strategy for your goals based on the numbers provided.
The investment property calculator also allows you to carry out a comparative market analysis by accessing rental comps. It helps you determine the subject property’s fair market value based on the rental comps’ selling prices. You can avoid overpaying for the property.
Related: How to Conduct Investment Property Analysis in 2022
Consider Off-Market Multi Family Properties
The key to accessing lucrative multi family deals is going for properties that aren’t actively for sale. Off-market properties are properties that aren’t actively listed for sale on public listing platforms. The owner may be selling but only preserving the deal for motivated buyers. Sometimes, the owners aren’t looking to sell but wouldn’t say no to an irresistible deal.
So, how can you access such deals if they aren’t listed on public platforms?
Mashvisor Property Marketplace is your answer. The platform is created to help you find auction homes, pre-foreclosures, foreclosures, short sales, and bank-owned multi family properties for sale. The best thing about the deals is that they’re often priced below market value, meaning you get a bargain.
Just like the Property Finder, you simply need to set the following filters:
- Property location
- Selling price
- Property type
- Ideal rental strategy
- Number of bedrooms and bathrooms
- Cap rate
- Cash on cash return
- Listing type (foreclosure, non-MLS, tenant-occupied, in need of repairs)
Once you’ve set the search criteria, the tool will generate a list of profitable off-market multi family properties for sale in your market of choice. You can also access the investment calculator to analyze each off-market property further.
Key Takeaways
Multi family rental properties for sale are a great way to invest in real estate, generate passive income, and grow your wealth. By definition, they are rental properties with more than one unit.
In addition to passive income and excellent cash flow potential, multi family rental properties also provide various tax benefits. It’s easier to get financing with them since banks are assured of monthly income whether the property is fully occupied or not. You can also tap into the equity or value appreciation and grow your investment portfolio over time.
To find the right multi family property to invest in, you need to ensure you identify the right location. You must also spot a suitable neighborhood and search for profitable multi family properties for sale. Finally, you need to carry out an in-depth investment property analysis. In every step of your real estate investing journey, Mashvisor can be very helpful.
