Real estate investors who are looking to develop a portfolio of rental properties that cash flow love multifamily properties. They are efficient, tend to cash flow well in the right markets, and can experience significant appreciation over the length of ownership.
But some investors might be wondering whether small, 2-4 unit multifamily properties will make their money go further or whether opting for a large apartment-style property is the better investment. In this article, we want to examine some of the pros and cons of each of these approaches.
2-4 Unit Multifamily Investing
Investing in 2-4 unit multifamily brings several advantages over larger properties while still providing the increased efficiency and ease of financing over buying single-family units. Essentially, you’ll have 2-4 tenants paying rent while reducing expenses from repairs, landscaping, and other necessary services.
The main advantage of these properties over larger complexes is offering many of the benefits of multi-unit property management with far less capital invested and simplified financing. Because multifamily properties are less expensive and fall under residential financing laws, you will have options available that you won’t have access to with a 30 unit apartment building.
5-30 Unit Property investing
Investing in larger multifamily properties offers many of the same advantages that smaller multi units do but on a much larger scale. Because you have many revenue streams coming from just one building, it makes management much more straightforward.
If using a property manager, you’ll also get a much better rate per unit than you will with a smaller property. This means you can lower the expenses per unit and enjoy a much higher cash flow.
Compared to a smaller multifamily, you’ll still have one tax bill, one landscaping bill, and one property management bill - but instead of having four revenue streams to absorb those expenses, you’ll have five or more.
Plus, having greater than five units allows you to have much more control over the value of the property. These are classified as a commercial property, and their value is based on the amount of income they generate. If you can increase revenue or lower expenses, you can increase the value of the property.
This means the property’s value is more under your control and less affected by external market forces.
Which Type of Investing is Right for Me?
Every investor has different goals, and no property type is the right choice for every investor. Which type of property you choose to invest in will largely be determined by the availability of capital, financing options, and the amount of work you are willing to take on.
If you need help with financing solutions to invest in non-owner occupied multifamily properties, get in touch with Investors Choice Lending today. We offer cash-out refinancing with 30-year fixed rates to help investors like you secure the capital they need to grow their portfolio. Plus, our products come with no income verification and no seasoning on the length of ownership. Just give us a call with your loan scenario, and we will get you the funding you need.
Multifamily investors know that these properties are notorious for their cash flow potential. Whether you have 3 units or 30, these properties offer excellent income with relatively simple management.
In this post, we are going to discuss some of the ways real estate investors can save money on their expenses and increase their monthly cash flow.
1) Negotiate with Your Vendors
A significant expense in real estate investment will be your vendors. This includes heating and air conditioning contractors, landscaping, garbage collection and more. It’s essential to make sure you're getting a good deal on these services to reduce your overall expenses and enjoy a higher monthly cash flow.
The more units your property has, the easier it is to negotiate better prices for these services or look for more competitive quotes from other providers.
2) Keep Your Rents Competitive
To maximize your cash flow, you’ll need to keep vacancies as low as possible. Though higher rents might provide a temporary boost to your income, keeping your rates competitive with similar properties will keep occupancy high and keep vacancies to a minimum.
That being said, it might be necessary to raise the rent when tenants are paying below market rates. If it is a rent-controlled property, you might have to wait for that tenant to move out before you can raise the rent.
3) Make Improvements to the Property
If you do want to earn higher rents, you’ll need to make significant improvements to the property. What improvements you can make and the expected return largely depend on your available capital and the current condition of the building, but might include new flooring in your units, updated appliances, or adding additional amenities like a laundry room.
If you need access to capital to rehabilitate a property, there are many tools available including cash out refinancing, hard money, and other products.
4) Manage the Property Yourself
This tip isn’t feasible for every landlord, but you can save a significant amount of money by managing the property yourself rather than paying a property manager. You’ll find that you can often find tenants, run credit checks, and address tenant concerns for much cheaper, though it will require a significant amount of work on your part.
5) Find the Right Financing Option for You
Perhaps the most effective way to increase a property’s cash flow is to purchase it with financing that works for you. Depending on the type of property and amount of capital you have available for a down payment, there are many options out there from both traditional and private lenders. Finding loan terms that allow you to maximize your cash flow is essential, so do your research before you work with any lender.
Enjoy Higher Returns Through Careful Management
One of the most significant advantages of real estate as a tool for building wealth is the ability to improve the rate of return proactively. Unlike other asset classes, you can have a direct and immediate impact of the value of your property by lowering your operating expenses, adjusting rent, or otherwise improving the property’s value.
Utilize these tips to maximize your monthly cash flow and enjoy a higher return on your initial investment.