My investment goal for me personally is to generate cash flow that is passive. To accomplish this I invest in multi-family apartment buildings rather than single-family houses. This blog will outline the five reasons I have for this. As Real Estate Investors in residential properties, we are required to take rent from tenants who reside in the houses (defined here as single family homes, apartments units mobile homes, etc.) which we offer.
1. Multiple Income Streams
The more houses you offer, the higher rent you’ll be in a position to collect. It’s as easy as that.
2. Centralized Management
To me, it makes more sense to have several “homes,” or “doors’ ‘ as we call it in the field in one location than having multiple single-family homes in the town. From a management perspective having one structure yard, yard, insurance policy, property tax, termite contract and waste management all under one roof makes life much simpler. To me, it’s not just the simple centralized management method that’s attractive as well as the capacity to expand to a lot of doors more quickly.
3. Scaling Up in Multifamily
As active investors, we must consider a variety of deals before we actually find one that is sensible. It takes time to locate the deal, study the numbers, move back and forth with the seller and/or broker, prepare the purchase and sales contracts as well as pay for inspections and appraisals, talk with lenders. And more. And so on… Ouch!! This takes a lot of energy and time. It can take as long to negotiate a single house as it does to negotiate a four or 30-unit multifamily unit. The due diligence process may take longer, but once you understand the process and have systems and checklists the process becomes significantly easier.
4. Economies of Scale
When you purchase a value-add apartment building that needs to be renovated with a lot of units can work for your benefit. As the owner of a large apartment building, you’ll be in a position to negotiate a lower price for the construction materials and labor. This will, in turn decrease the cost of repositioning and could save you thousands of dollars when you move the property. Economic economies of scale benefit the overall running of the building and the portfolio as overall. whole.Apart from getting lower rates from contractors and property managers when your portfolio is nearing 100 units, you may have a local leasing agent as well as maintenance staff who earn a salary. This alone could save you thousands of dollars each year, which will improve the net operating income of your portfolio (NOI). In multifamily apartment buildings an rise in NOI could also increase the property’s value.
Property Value = NOI/Cap Rate
The advantages of multifamily properties go a long way in retaining tenants too. The presence of a lot of apartments under management can be beneficial to tenants with things like low internet prices, competitive cable and housekeeping garbage collection as well as dog walking and pet walking services that are contracted through local providers of services.
5. Reduced Risk of Vacancy Loss
One of the greatest risks landlords face is loss of vacant units. I’m not talking about the loss of vacancies due to an unforeseeable incident like fire, flooding or earthquake, which can be mitigated with the proper insurance coverage. It’s about empty units that can be rented. If a house is unoccupied it is not generating any rental income. In this scenario, the landlord could be behind on mortgage payments or may not have enough funds to cover the expenses of living for the landlord. If an investor owns a multi-family apartment building that has many doors, the investor has a greater “cushion” against vacancy loss since the probability that rental income will end is much less. It is known as margin.
A margin analysis is a component of a stress test to assess how the property’s performance compares to the possibility of vacancies. Margin refers to the difference between your net earnings in the event that the building is percent fully occupied (no vacant spaces) and your break-even point (the moment when you’re earning just enough money to cover the costs). If you’re in the margin, your rental income will be sufficient to cover the expenses. If your rental vacancies are higher than that amount, you’ll have to pay for the shortfall using cash out of pocket. The ability to have multiple streams of income within one roof can result in a higher margin since multifamily properties may be vacant and be able to pay for operating costs and debt service. One might say that a single family homeowner can get similar results with multiple homes. This is certainly true, however investors who have only single-family homes are not able to reap many of the other advantages that are mentioned above.
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