Multi-Family Real Estate in 2018
An Exploration of Multi-Family Real Estate Investing
For new real estate investors, there are dozens of options out there to choose from, from fix-and-flips to investing in REITs and multi-family real estate. For those interested in residential real estate, multi-family real estate investing can be particularly attractive. We don’t blame you. It can be exciting to imagine buying a multi-family property and receiving multiple rent payments every month! But, of course, there’s much more to multi-family real estate investing than just that.
Perhaps you don’t know anything about multi-family homes. You’re just looking for a reliable place to begin your investing career. There’s nothing wrong with that! You need to figure out for yourself exactly what types of real estate are right for you, and multi-family real estate is a popular starting point for some beginners.
Or, perhaps you have a foundation in residential real estate investing and you’re curious if multi-family real estate investing is right for you. You may just want to understand a bit about the multi-family real estate market. It would be helpful to understand what kind of multi-family homes you should look for.
Before you dive in and starting looking at local multi-family housing options or purchase a multi-family property, you need a lay of the land. And that’s what WealthHunters is here for. Is multi-family real estate investing right for you?
Investing in Multi-Family Homes in 2018
If you’re interested in investing in multi-family homes, you have quite a few multi-family housing types and investment approaches to select from—which can be a positive or a negative, depending how you view it. The diverse nature of multi-family housing is an advantage as it offers you a better chance at finding the right multi-family property for you.
First, you should choose what of property you’d like to specialize in. Multi-family houses can include townhouses just as easily as they include apartment complexes. As we mentioned, the diversity of multi-family homes out there can make it easier for you to find your niche. You can choose duplexes, triplexes, or a larger building—because they all qualify as multi-family real estate. When you first start in multi-family real estate investing, you should probably start small. Choose a multi-family property that is within your budget—because the larger you go, the greater the risk.
The property ownership experience varies in multi-family real estate, too. For example, if you hate the idea of being a landlord, there are ways you can still invest in multi-family housing. For a monthly fee, certain property management companies handle day-to-day business, from finding new tenants to handling maintenance requests and everything in between. Obviously, this eats into profits, so you need to determine if the extra peace of mind is worth the price.
For smaller multi-family homes, such as duplexes or townhouses, you may find it’s worth it to take on the day-to-day property management yourself. While it’s definitely recommended you seek assistance as you start out, you’ll retain more of the rent and increase profits. Multi-family property rentals are most profitable in the long-term. Determine whether you’re comfortable as a landlord of one or more multi-family homes.
Assessment of Multi-Family Real Estate Investing in 2018
Even a thorough understanding of the daily life of a multi-family property owner won’t tell you whether or not you should get into multi-family real estate investing. You need to keep an eye on the market, as well.
The U.S. multi-family real estate market is very strong right now. However, that’s exactly why you need to proceed with caution. The real estate market is full of signs that we’re in a bubble, and the multi-family real estate market is no exception. Multi-family property values have stalled in certain major markets, which can even suggest a market contraction is on the horizon.
Should your residential real estate market experience a dip, you need to be careful. Should you take out a mortgage to purchase a multi-family property and suffer a loss, you need to ensure you can avoid vacancies to maintain profitability until the multi-family home’s value rises again. Multi-family real estate is typically more expensive than single-family residences. If you’re considering multi-family real estate investing for the long term, you may experience a dip in the rent or value of the multi-family housing you’ve purchased.
Keep your eyes on a few things in your market: Construction rates, rent prices, property values, and population trends.
If multi-family construction rates and rent are slowing, that could indicate an overabundance of housing—so vacancies could be inevitable. On the other hand, if population and prices are rising, you may not run into vacancy issues. There are many factors you can use to determine whether multi-family homes are a smart investment in the near term. Your multi-family property may lose value for a period, but historically multi-family real estate investing offers returns.
Emerging Mortgage Fraud in Multi-Family Property Real Estate
Thinking about getting a mortgage to pay for that multi-family property down the road? Be careful.
According to early reports, fraud within real estate lending holds the potential to impact the multi-family real estate lending market for the next few years (at least)—as well as your chances of success with multi-family real estate investing.
If you recall, the housing market crashed in 2008 because large banking institutions offered risky loans to financially unsound borrowers. Once the mortgages defaulted, the collapse not only devastated the housing market but impacted the world economy.
Thanks to a bombshell report by the Wall Street Journal, we know that certain large multi-family real estate owners have allegedly falsified property income, occupancies, and other details to major lenders. If this practice is found to be systemic, the fall out would spell a lot of trouble for the multi-family housing industry. Even more broadly, systemic loan fraud could raise rates throughout the real estate lending industry and make property ownership much more difficult. Following the housing market crash in 2008, lenders tightened their loan underwriting guidelines significantly. It’s not hard to imagine higher rates or strict lending qualifications as a result.
This doesn’t mean that your dream of owning and managing multi-family homes should be shelved. It does, however, illustrate the importance of getting familiar with the multi-family housing sector before you step into it. The last thing you want is for something to impact your multi-family property when you could have planned for it.
A Snapshot Analysis of Multi-Family Housing
If anything is certain with multi-family housing, it’s that you need to do your research. Multi-family real estate investing generates income, but it’s a risky way to go for first-time investors. Bubbles and lending fraud plague the market and threaten to impact your own multi-family homes. And it goes without saying, but it’s probably best not to start out with 20-unit multi-family real estate. Smaller multi-family housing properties, particularly 3-4 unit properties, can offer financing advantages and fewer tenant headaches.
However, if you have the capital and support to take on a small multi-family property, there are definitely upsides to multi-family real estate. Multiple rents can help you stay profitable in the early years of multi-family property ownership. Meanwhile, multi-family housing offers you some flexibility. If you wish to manage your multi-family property yourself, you can. If you wish to leave the management of your multi-family homes to a property management company, you can. As you explore multi-family real estate investing, you’ll find out what works for you.
If you determine multi-family housing is the right investment for you, take steps to get started. Begin researching the multi-family homes in your area. Speak to a real estate agent who specializes in multi-family housing, or interview an multi-family real estate investor. Research rates for multi-family homes. And get your financials in order with an eye toward savings as you scope out multi-family homes for the future. You may realize some returns with multi-family housing, and you’ll gain the satisfaction that comes with pursuing your financial goals.