Are you ready to diversify your real estate investment portfolio with a high-performing asset? If you are currently searching for your next investment move, a multifamily property is a great option to consider. The team of financial experts at Security Financial Services (SFS) have years of experience assisting investors getting started in the multifamily sector and have compiled the following overview of what investors need to know when determining if this type of property is the right fit for them.
Multifamily Investment Property Basics
First things first, what exactly is a multifamily property? Essentially, this property type is any residential structure comprised of multiple individual living spaces with their own kitchens and bathrooms. Typically, these come in the form of apartment complexes and can range from relatively small duplexes with two units to towering high-rises with hundreds of apartments. SFS specializes in providing short term financing on multifamily properties with anywhere from 2 to 20 units.
Advantages of Investing in Multifamily Properties
1. Optimal Cashflow
A primary benefit of making an investment in the multifamily space is the stable monthly cashflow these properties generate in the form of rental profits. Whereas single family residences only produce a single stream of income, multifamily properties have several tenants all paying rent every month. Even if an unexpected vacancy occurs, multifamily investors can still make a profit from the other rented units while working to fill the empty one. That is simply not the case with single-family properties, where if the tenant abruptly leaves investors are left with zero profits.
In addition, tenant demand for multifamily units has recent increased. Home ownership has subsided somewhat because higher interest rates has made home mortgages less affordable – encouraging would-be home buyers to continue renting.
Still, investors need to be thorough when conducting their due diligence and ensure that their rental income will cover their net operating costs (including mortgage fees, insurance, maintenance expenses, etc.) while still being profitable.
2. Financing Opportunities
Multifamily buildings typically cost significantly more than single family properties in the same geographical market, but the good news is that it is easier to lock in flexible financing options to make a multifamily investment. Multifamily properties boast an inherently lower risk profile when compared to other property types from a lender’s perspective – multifamily has more resilient cash flow. This means investors can often lock in lower interest rates for multifamily investments. For instance, if you have ten units and one of them moves out before their lease ends, your overall income only falls 10 percent until you can fill the vacant unit. If that happened in a single-family rental property, an investor would have no safety net to cover their operating costs until they found a new tenant.
3. Options to Expand
If you are planning to significantly build out your real estate investment portfolio, adding in multifamily assets is a much more efficient approach than concentrating solely on single-family properties—which you will have to purchase one at a time. Multifamily holdings additionally enable investors to branch into the commercial real estate niche, as the bigger housing complexes (5+ units) fall into this sector which offer an enhanced cash flow prospectus and higher overall passive income.
4. Tax Breaks
Acquiring a multifamily investment property allows investors to take advantage of beneficial tax benefits. Property owners can write off expenses associated with maintaining and operating the asset, to include costs for utilities, property management, insurance, maintenance, renovations and even marketing initiatives. From a long term perspective, investors can also leverage depreciation and cost-segregation tax breaks as the property and appliances get older to reduce their tax obligations and improve their bottom line.
A Trusted Lending Partner in Northern California
One of the most essential components of successful real estate investing is dependable, efficient access to the capital you need to close on promising investment assets. That’s exactly what Security Financial Services has to offer. Founded in 1943, Security Financial Services (SFS) is an established real estate lender headquartered in San Francisco. Throughout both good times and bad, we’ve provided mortgage brokers, developers, and investors acquisition, rehab, or refi loans secured by property throughout the Bay Area and Northern California. Call us today to learn more about how we can help you diversify your investment portfolio with an income-generating multifamily property!