Shared post from cashflowdiary.com
People ask me all the time if they should invest in Multi-Family Properties. If you’re one of them, my answer is ABSOLUTELY… but only if it fits your Investor Identity. The truth is though, that it has to be right for you. To help you understand that part, you first need to understand the many benefits.
Investing in multi-family properties is one of the most powerful investment strategies you can use to create astounding and consistent cashflow month after month. But that’s just one reason to invest in multi-family housing.
Here are six more:
1) Multiple Properties Under One Roof Means Easier Management
What’s more attractive… 12 single-family homes spread out across a city to manage, or 12 units under one roof? With the 12 individual properties, you may need more than one property manager; with the one building you only need one manager.
Now let’s say you have a 72-unit building. You still only need one manager on site or one property management company that will handle rent collection, tenant issues, and grounds and other management duties.
Finding a great property manager means you have to ask the right questions, and you always want to have a plan B in case the property manager or management company doesn’t work out.
Make sure you never have a single point of failure.
2) Forcing and Phasing Appreciation in Multi-Family Properties is Easier Compared to Single-Family Housing
Appreciation rarely just happens. You have to do specific things to force the value of a property up or phase in amenities and benefits to tenants which will push the appreciation up.
In single-family housing, you don’t have as many options with these activities, because there’s only so much you can do.
In a single-family home, you can slap some lipstick on the property to give it more curb appeal, or you can do a deeper rehab to make the property more functional. However, you are doing this to force the appreciation on ONE property only.
When you give your apartment building (or even a 4-plex or 8-plex) more curb appeal, fix things in the property that make it more appealing as a living space for tenants, add a nice laundry room or business to the property (if we’re talking about more than 12 doors), or revitalize a useless space to create something that is a benefit to tenants, and you will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating more and steadier cashflow, because your tenants will want to stay.
3) You Can Create Even More Cashflow in The Multi-Family Property
This is pretty exciting stuff, because there are ways to create cashflow beyond rents. Take the last point, for example.
What if you add a nice laundry facility to the property? Say you have a one-bedroom unit or a studio apartment in your building that you know will only invite transient tenants. What can that space become that will generate even more income month after month?
A safe, clean, well-lit laundry room with decent coin-operated machines can be a great idea. It benefits the tenants who don’t have washers and dryers in their units and would normally have to lug their laundry to the nearby Laundromat. Why make them do that when they could have the laundry room on the property? They are using coins either way. Why not let them feed those coins into your machines? The cost of the machines will be covered quickly, and you can get great deals through bulk purchasing.
Make the space clean and safe. Consider adding a security camera to keep out any bad elements, and you have a winner. In fact, that’s called a win-win. You win; your tenants win. You’re creating a space that raises the quality of your tenants’ lives, which feels really good. (The laundry room is just ONE thing you can add. There are many more amenities to add that bring additional cashflow in a variety of ways.)
4) There Are Great Tax Breaks that Come with Investing in Multi-Family Properties
When you provide housing it’s a good thing. The government thinks so, too.
The city in which the property is located likes the idea, because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it.
As a result, you can gain all sorts of tax incentives… also known as tax breaks. You can take a whole lot of deductions because this is a business. You are running a business of Real Estate Investing. You can depreciate all sorts of things in an apartment building or rental property, and that depreciation takes place over more than two decades… sometimes three decades, depending on whether the property is classified as residential or commercial. The size of the property and other factors dictate the classification.
The long and short of it is that when you invest in multi-family properties, you’ll want to get a very competent CPA and/or CFO to help you get as many deductions and tax incentives possible. It could be that you can even get government grants to offset upfront costs. The benefits on this side can be massive. You could end up paying zero property taxes. That would save you money in a big way, right?
5) Multi-Family Properties Hold Their Value
Once the property is rehabbed, and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later (if you ever want to sell). You’ve put in place everything required to attract and retain tenants. That means steady cashflow, which is mighty appealing to investors.
You have to make sure to maintain your property so it retains its value over the long haul. The grounds must be kept up, minor repairs performed in your ongoing maintenance plan, and really good maintenance people must be in place. Find the best by asking the best questions. Do you due diligence on the people wanting to work for you.
You want maintenance people and grounds keepers who share your desire to provide clean, safe housing. That’s part of what they are responsible for… maintaining a good living space for the tenants. You need to learn the difference in workers’ mindsets. It’s a sure bet that theirs will reflect yours. You want motivated workers. Learn how to adequately motivate them to not just care for the property but also care about the people living there.
6) Investing in Multi-Family Housing Allows You to Change Lives
If you create a space where families can thrive, that’s a perk. You could go into Wal-Mart-type areas where you see lots of opportunities for improvement. In apartment buildings and smaller multi-family properties, you’ll see opportunity in the form of boarded-up windows, overgrowth of the grounds, graffiti, messed up swimming pools, filthy laundry rooms and dwellings that need a whole lot of help.
How good would it feel to get that property, rehab it, solve the problems, attract families that need clean, safe, affordable housing, and then positively impact whole zip codes? You can do exactly that if you have the commitment and the right teams in place to help you through the rehab process. You’ll need other team members, too, but you can learn what that looks like before you begin.
Obviously, investing in Wal-Mart-type areas isn’t for everyone. Fortunately, there are plenty of other levels in the multi-family investing space. You can find properties that fit your Investor Identity. Then you can affect change, and earn great cashflow at the same time. That’s a great accomplishment.
Knowing that you have the ability to change lives is something that makes you feel good.