If you’re a real estate investor at any level, you know the value of time and money. You likely got into this space for the sole purpose of creating a passive income for yourself and your family. But how much time and effort are you spending on your investments and is there a way to become more efficient?
The answer is YES! There is absolutely a way to become more efficient and make more money at the same time. This is where multi-family housing comes in to the picture. It is definitely worth considering and we will discuss how and why a little later in this article.
Multi-Family housing is just a fancy word for apartments and condominiums. It is basically a structure or a community full of buildings that have “units” where families live. Multiple families living in the same building… hence the term “multi-family”.
There are a variety of reasons why this is a more efficient investment. As I said in the beginning, if you know the value of time and money, you’ll be interested to know how to maximize both.
Multi-family real estate has had the highest average annual returns for more than 25 years. It has outperformed industrial, retail, hotel and other investments. In fact, between 1992-2017, it produced 9.75% returns for its investors.
Smart investors consistently look for options that will produce high returns and put their money to the best use possible. Some investors are more risk-averse than others, but multi-family is usually a safe investment for all the reasons we will discuss in this article. It’s a smart decision and housing will always be a need, regardless of what is happening in the economy or the world.
Studies show that both millennials and baby boomers are increasingly becoming renters rather than homeowners. For millennials in particular, homeownership is often out of reach due to the steady increase in home prices. For baby boomers, it is likely the desire to spend time traveling or doing leisure activities, rather than house and yard work.
Regardless of the reasons for renting, both of these generations represent a large portion of the marketplace. Millennials are the largest generation in U.S. history and if the majority of them are renters, the multi-family real estate business will continue to grow.
Due to the fact that multi-family housing enjoys shorter-term leasing agreements, owners and investors can adjust pricing more quickly as the market changes. For example, rent on an apartment will typically be 6-months, 12-months or even 18-24 months. Conversely, on office space and other commercial structures, the lease agreement could be 5, 10, 20 years or longer.
Because of the shorter-term leases, landlords can increase the rent more often and more quickly to adjust when the market changes and they need more cash flow. Other commercial investors do not enjoy this same level of agility.
Multi-family structures are an extremely efficient form of investing because you can attract renters all in one place, rather than having 20 independent houses all over town. Chances are very good that you only have one mortgage for the whole property, along with one fee for landscaping, grounds keeping, insurance and potentially a property manager. It is much more time-efficient to operate in this capacity because you only have one location to deal with.
When buying, selling and renting your various properties, you would need to work with a ton more people on single-family homes than you would with a multi-family property. With individual homes, you would likely need to work with 20 different sellers and 20 different inspectors at 20 different addresses! With a multi-family property, it’s one seller, one inspector and one address for the same 20 renters.
The buying and selling process is more streamlined in this scenario, which saves a ton of time for the investor. Once the purchasing process is complete, it’s all about getting the units rented out and the cash flow coming in.
You can also consider the increased efficiency from a marketing standpoint. If you own 20 individual single-family homes and you have to market them individually, that can be really time consuming, not to mention expensive. You need a different landing page for each one, different photos, different descriptions, etc. If they are in different neighborhoods, you will also need different marketing strategies based on the target audience.
With a multi-family structure that has 20 units inside, you can be much more efficient. Yes, you still need 20 renters and you still need to market the units, but it takes a lot less work. You can have one landing page, one description, one gallery full of photos and so on. Renters who are looking for homes in your area will be able to see all that you have to offer in one spot, which is convenient for them, as well.
If you own and operate the structure, you can also brand it however you like. Whether you’re interested in forming an LLC or your own brand of apartment or condo, you have the ability to do that. If not, that’s okay too.
If you’re not yet in a place where you can afford to purchase a multi-family housing structure on your own, that doesn’t mean you’re completely out of the game. It just means that you need to do some other forms of investing and saving more cash until you get there. You can develop a basic strategy for building your portfolio and go from there.
There are also some key considerations when it comes to getting approved to buy a multi-family structure vs a single-family home. I recommend talking to your lender before assuming it’s not possible for you. Many banks will approve the purchase of a multi-family property much more quickly than a single-family home.
Because multi-family units have a track record of producing a steady cash flow from month to month. Even if the property has a few vacancies, it is highly likely that the renters in the other units provide more than enough cash to cover the expenses of owning the building. When a lender looks at all of these details combined, they see a much lower risk and are more likely to lend the money.
If your lender says no, don’t fret! Investing in multi-family housing doesn’t always mean owning the structure. It could mean other forms of investing where you purchase shares in someone else’s projects.
One of the strategies that is growing in popularity and making investing more accessible is the creation of real estate investment apps. YES! There’s an app for that!
If you’re thinking I’m crazy, just hear me out for a second. Real estate is an industry that is highly dependent on data, location and money. What is the one device that you probably already use for all of those things? You guessed it – your phone.
You probably use your phone for GPS, real estate searches, internet browsing/research and you might also log into your bank accounts from your phone. If you’re comfortable using it for all of these things, why not download an app that will help you do them all at the same time?
Depending on what type of investor you are, there will be different apps that will help you accomplish your goals. There are apps specifically designed for certain aspects of real estate investing such as commercial structures or fix-and-flip homes. There are other apps that are more general and all-inclusive. Which one will work for you really depends on your area of interest.
Fundrise is a great option if you’re looking for an all-in-one solution. It gives you access to both residential and commercial investments, but requires a certain investment level for each tier. You have to choose a tier when you open your account: core, advanced or premium. The three tiers have minimum investment requirements of $1,000, $10,000 and $100,000, respectively.
This app functions more like a traditional investment account at a financial institution. You invest the money and they choose the investments. This is excellent for investors who are okay with giving control of their money to someone else. But if you want full control, this one is not for you.
Yieldstreet is another app that gives investors access to investment options that used to be reserved for hedge funds, crowdfunding investors and ultra-wealthy people. With this app, you will have access to commercial and residential properties. The residential properties are mostly multi-family, high-producing entities.
This is a great option if you have a little cash to invest, but not enough to purchase an entire building. You can start here and as your investment grows, you can save up to purchase that investment property.
Property Fixer is an excellent resource for investors who like to fix-and-flip both single-family and multi-family residences. It can help you do a full analysis of the property while onsite, rather than trying to create spreadsheets and such when you get back to the office. It will include things such as buying and holding costs, projected return on investment and mortgage calculators.
If you upgrade to the pro version, you can create portfolios, brand your PDF files and send them to clients or investors right from the app. It also lets you itemize expenses and upload photos for a complete package related to a single property.
Ten-X is almost like an auction site. It will help you find the best deals on commercial properties in your area. Both buyers and sellers use this app, which also has a robust web presence. It his highly data-driven to help you make the best choices for your investment portfolio.
However, this is an online sales mechanism. So, if you’re in a place where you’re not quite ready to buy yet, you’ll be better off going with an app that lets you invest or buy shares, rather than the whole property.
If apps aren’t your thing, you can always sit down with a private investment broker and ask about your options. Much like the apps listed above, many brokers can offer access to a variety of properties that you wouldn’t otherwise be privy to. They can help you manage your investments and choose the right properties in areas that are increasing in value.
When talking to a broker, be sure to consider their minimum investment amounts, fee schedules and limitations. How much control will you have over your own money vs how much they will control it for you. Only you can make the decision on how much control you want to relinquish to a broker.
Multi-family real estate is an excellent investment for both beginners and seasoned professionals. It has historically produced higher returns with lower risk than many other options. For this reason, it is an excellent way to diversify your investment portfolio with peace of mind.
Whether you choose to invest by purchasing a building, or through an app or brokerage, you can feel good about your decision. As the market for multi-family housing continues to grow, your investments should too.
Charles Carillo is the founder and managing partner of Harborside Partners. He has invested in over $25 million worth of real estate, in several states, and has extensive knowledge in renovating and repositioning multifamily and commercial real estate. Charles holds a BS from the Connecticut State University.