Investing in real estate is an established and effective way to accumulate wealth and, potentially, develop passive income streams. Whereas there are several real estate options, multifamily homes can be attractive. A 2019 American Housing Survey and the U.S. Census Bureau survey stated that 31.4% of houses in the United States are multifamilies. That equated to over 40 million units. For this reason, we will discuss the benefits of investing in one and what people should keep in mind before diving into this market.
The Advantages of a Multifamily Home
The main draw is that multifamily homes generate income. For instance, a buyer may create a cash flow covering their mortgage and expenses while leaving room for potential profit. Though multifamily dwellings can be as small as two distinct units, ones with more than two provide a blanket of financial security. The income generated from occupied units can offset any losses the owner suffers due to vacancies. Lastly, these properties tend to appreciate faster because of the increased demand for housing. Even if the owner can only cover their mortgage payment with the rent they collect, they are holding onto a valuable asset that they can sell at a substantial profit in the future.
Things to Consider
The upfront costs of a multifamily unit are higher. People who invest in these properties can generally afford a more substantial down payment because it will make their monthly payments more manageable. For this reason, buyers should look at several different financing options.
In many situations, the owner lives in one of the units, but they also have the dual role of being a property manager. The term “passive income” can be misleading. By collecting rent, the owner is obligated to oversee various aspects such as tenant screening, rent collection, and maintenance. Some people hire a professional property management company to ease their burden, which impacts their profit.
The last question an investor must ask is how reliant they are on the income generated by tenants. If the owner needs the rent payment to make their mortgage payments, which can be significant, then vacancies pose a massive challenge. This is why investors must develop a market strategy to assess demand and maintain positive tenant relationships. Because the risk of vacancies can be mitigated as opposed to eliminated, owners need to build a financial buffer to cover their expenses during periods of vacancies.
Invest with Legal Support
Investing in a multifamily home is a legitimate way of building wealth and generating a “passive income.” Like any business decision, investors must weigh the advantages against their market research. It is common for people to require professional guidance from a financial advisor to get a clearer image of what owning and maintaining a multifamily home will look like. Additionally, professional advice always comes in the form of legal counsel.
If you are considering investing in one of these properties, contact Auricchio Law Offices to set up a free consultation. We understand the lending process and will review each document (including leases you may have your tenants sign) to ensure they align with your interests and investment goals. We also have extensive experience representing clients in a landlord/tenant dispute. Careful planning and informed decision-making will lead to a rewarding and lucrative real estate transaction.
Auricchio Law Offices
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