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.