Multi-Family Real Estate Investing Benefits and Nuances

Are you ready to move beyond single-family home investments? If this sounds like you, multi-family real estate might be a good investment.

Before you invest in any asset, you must consider the pros and cons of each move. Also, you need to know what you specifically want as an investor. For each decision you make, there will be a variety of outcomes.

Here is a list of 4 multi-family real estate investment tips and tricks.

These tips may be just the thing you need to make an addition to or transition from single-family home investments. You'll enjoy these tips if you're ready to move in a new direction on your real estate journey.

Tip #1: Passive Income: Sensational Value!

A multi-family is any residential property that contains more than one housing unit. These properties include, but are not limited to:

  • Duplexes
  • Fourplexes
  • Townhouses
  • Apartment complexes (with 5 or more units on the property)

With more units come more tenants and more rent. Keep in mind that in the United States, the average rent is $1,326 per month.

For a real estate investor, that means more sources of cash flow.

Maybe you don't want to deal with finding deals, securing financing, and hiring a property manager. You still want to invest in multi-family real estate. A real estate syndication might be best for you.

With syndication, you pool your money with other investors and invest in a property. You get to spread the risk and responsibility among multiple investors.

Finally, multi-family real estate investing is an excellent way to create a diverse portfolio. When you diversify, you collect a variety of asset classes. A combination of assets reduces your risk. Any single asset class's performance doesn't tank the rest of your portfolio.

Tip #2: Professional And Reliable Team Fundamentals

When you invest in multi-family real estate, you need a reliable team to help you.

Multi-family is different from single-family home investments. It's both real estate and a business based on net operating income. So part of your team needs to be a mentor who has experience in the industry of multi-family real estate. Also, a mentor can find the sweetest deals and craft a safe exit strategy.

Next, you'll need a person to manage the asset. Your management might be a local person who can handle the property's day-to-day operations. For instance, you might employ a property manager who oversees the maintenance, finding and managing tenants, and emergency repairs.

Generally, people struggle with multi-family real estate investments when they mismanage the property. This type of investment takes a team and reliable partners.

It helps to increase your net worth when building your team. Part of growing your net worth is networking. You enter into a mutually beneficial relationship with someone who shares your vision.

Tip #3: Colossal Profits From Scaling

Economies of scale provide advantages when the cost of business spreads over a large number of units. With multi-family real estate, math and the law of averages works in your favor. Keep this in mind; people need a place to live regardless of market conditions.

You might have started with a single-family home and had success with your tenant. That's the limitation of your single-family home; you will only ever have one tenant. You can't scale that rental income.

With a multi-family property, you can scale exponentially. When you have more units in a property, you get more benefits, including:

  • Saving time, you're still only managing one property
  • Less work per unit
  • The break-even point is lower

Tip# 4: No Compromise On Due Diligence

When looking for the right place to buy multi-family real estate, you must do your diligence. At a minimum, you need to research:

The population needs to be growing. Typically, people want to live in a safe area of town, so you have to know the crime statistics for your investment area.

The economy needs to be both strong and diverse. For instance, Killeen, TX, is home to an Army base called Ft. Hood. The entire economy revolves around the base. In most rental properties, you will find a soldier renting. The thing about soldiers is that they move or get deployed. When that happens, you are subject to the Servicemembers Civil Relief Act.

Find areas where the economy and renters are not homogeneous to avoid being stuck with empty units in the case of deployment or an economic downturn.

Good school districts are attractive to tenants with children. 32% of renting households have children, so you should keep that large chunk of the market in mind when doing your due diligence and research.

Key Takeaways

If you are ready to change your investment strategy or are looking for additional investment opportunities investing in multi-family real estate might be for you.

When you invest in multi-family real estate, you should:

  • Enjoy that passive income
  • Build a team
  • Scale accordingly
  • Do due diligence

For more education about opportunities for real estate investors, join our Royal Investing Group Mentoring on Wednesdays at 12:30 p.m. EST. We meet weekly for an hour as a large group to learn, share, and collaborate on relevant topics in a fun and friendly format.

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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