Whether it’s time to expand your real estate portfolio…
Or you’re trying to find new investment avenues and opportunities…
…or you’re simply ready to dip your toes in real estate for the first time…
Multi-family properties can be an excellent solution for you!
If you’re truly new to real estate you may be unfamiliar with that term.
Yes, it’s a property that can be used for more than one family but that’s oversimplifying the true nature of this spectacular investment asset.
Being physicians we know the importance of being very specific when discussing topics and treatments. It’s not wise to assume our patients understand the jargon or medical terminology we use.
So let’s dive in together and talk specifically about multi-family properties…
What Is a Multi-Family Property?
Let’s get a little more technical with our view of multi-family properties.
A multi-family property can be a single building that’s divided to accommodate varying amounts of families that live in separate units of that building. The housing units will have their own kitchen and bathroom since each unit has to support a family.
There are different types of multi-family properties to choose from with each type of property having its own pros and cons.
A Duplex is two adjoining units that comprise one whole, that is the building. A Fourplex is similar to a Duplex but there are four adjoining units that make up the building. Each unit in either a Duplex or Fourplex will have its own entrance, with potentially separate yards and garages.
A condo is an individually owned unit that may be a part of a building or even a community. The owner of the unit is responsible for maintaining the unit and paying any fees related to the unit. If the unit is rented then the tenants will have a contract where they pay rent on a monthly basis in addition to other potential responsibilities like utilities, lawn maintenance or other things listed in the lease..
A townhome or townhouse is a property where the residents share conjoining units. Each unit is separated from the others and has at least two stories.
This is what people normally think of when the term “multifamily” is thrown around. This can be as small as a 4 plex or as large as several hundred units. Apartment complexes can offer a wide variety of amenities and benefits to tenants. They can be high rise, garden style or many varieties in between.
There are other classifications but this will give us a nice working vocabulary to use going forward.
To learn a little more about multi-family vs single-family properties you can read our blog, “Real Estate Investing: Single-Family vs Multifamily Properties”
Multi-family investing is a great way for real estate investors, both experienced and novice, to get started buying properties that will generate passive income.
So… why exactly invest in multi-family properties?
Let’s get to a few benefits since we’ve covered several different types of multi-family real estate.
Multi-family properties have a myriad of benefits but we’ll specifically discuss three:
- Inflation Resistant
- The Ability to Drive Appreciation
- Evergreen Asset Class
The rise of inflation is worrisome to investors. It may seem as if inflation affects all investments the same, but that’s far from the truth.
Multi-family Properties Are Inflation Resistant
As consumer prices go up, so do rents. It’s much better to own hard assets that appreciate in inflationary times than to have investments that are subject to inflation volatility. Rents increase along with consumer prices. If you have money sitting in cash, it gets dramatically devalued with inflation.
Multi-family properties have provided an opportunity to allow investors to benefit from an increase in inflation, compared to other investment assets. This benefit lies in the lease terms for multi-family vs other commercial real estate assets. Multi-family properties usually can restructure a lease every twelve months while the other commercial properties may be three, five, or even ten years. Investors of multi-family properties can restructure the lease to reprice rents as prices increase.
A multi-family property normally has an annual turnover rate of 20-40% so this allows investors the opportunity to quickly react, increase rental rates, and hedge against rising inflation.
Sounds pretty good, right? The ability to be agile in inflationary times is an excellent benefit to multifamily.
Ability To Drive Appreciation
We all want our investments to appreciate over time because it helps build our net worth and passive income throughout the years.
The appreciation of your property is how much more your building is worth from the day you made the purchase up until the present. If you bought a property for $5 million and sold it 3 years later for $9.5 million, your realized appreciation is $4.5 million over that period.
Not only are multi-family properties inflation resistant, but you can also actually be in control of driving the appreciation. You do this by increasing net operating income (NOI).
Since multifamily is valued by an income approach, NOI is extremely important. The formula for valuation of multifamily is NOI/Cap Rate= Value—the more you increase NOI, the more your property is worth… If you increase NOI by 50k at an 8% cap rate you just added $625,000 in NOI.
Multifamily rent growth in 2021 was up 14 percent year over year which is a record and rental units have seen the biggest one-year jump in decades at 21.6 percent.
Over the last decade, property appreciation in most real estate markets has been a certainty. However, it’s not always been the case as witnessed in 2010. I would much rather invest in an asset where I can drive appreciation rather than depend on an appraiser’s opinion based on a home next door.
Are you ready to see the appreciation of your next multi-family property? Have questions? I’ve compiled 6 of the most common FAQ’s I get from new real estate investors in my ebook. You can get it for free! Click Here
Evergreen Asset Class
An evergreen real estate investment will provide consistent cash flow that won’t diminish even with changing real estate landscape.
This is how multi-family properties really earn their worth, because they will constantly be needed, evergreen.
Doesn’t that sound amazing? To be able to have a real estate property that will always provide a way of producing profits.
People always need housing. One of the surprising trends in the U.S. rental market in recent years has been the emergence of baby boomers as a major source of demand.
The data shows over the last two decades that many older Americans are forgoing homeownership in favor of shorter-term living arrangements in the rental market. The same goes for millennials. Demand far outpaces new apartments starts and is projected to for many years.
As demand rises and there isn’t a surplus of supply, what happens? A shortage occurs… leading to an increase in unit prices which means added profit for investors.
It’s time to take advantage of the real estate market by investing in your first multi-family property!
Great Things Are Happening
Feeling burnt out? Wish you could have a passive income? It’s a difficult undertaking to be a physician and learn the ropes of real estate investing on your own. If there’s one thing we cannot put a price tag on, it’s time. My mission is to share with as many physicians as possible the “investable universe” I’ve uncovered. That’s why I want to partner with you to help you in your investing journey!
The Cash Flow MD is always here to provide new investment opportunities to its clients. We’ve been working hard behind the scenes to secure assets that will truly be life-changing.
From multi-family properties to mobile home parks, I’ve built strong partnerships that I want you to be a part of. If you’re interested in learning more about how I can help you get into new investment opportunities then it’s time to reach out!
Contact me today and allow new opportunities to be unlocked in your life! Click Here