Thursday, April 12, 2012

The Advantages of Multi-Unit Investing

Elizondo Mendoza

Flipping single family units has received more exposure than multi-unit housing over the years. This is due to the media attention it has been receiving with reality TV shows such as Flip This House and home improvement shows. However, investing in multi-family units might be a better option to consider for people who have money saved, and are looking to earn more money on their investments in a market that is currently booming. Usually the investors believe that buying single-home units will get them a good foothold in this particular market and they don’t have to invest a huge amount. This is outright a misconception. In a multi-unit investment, you can find more tenants and better cash flow compared to single units or homes (Kim and Charles). The extra money coming in from different tenants can be used to quickly payoff the mortgage and also to cover any maintenance expenses.
            Economies of scale are in favor of multi-unit apartments because all the tenants are consolidated in one place as opposed to somebody that has a couple of houses spread out throughout the city. This makes it easier on the investor not only to collect rent, but also provides other advantages. Some of these advantages are seen when performing repairs or performing maintenance on the units. One only has to worry about fixing one roof, and taking care of one lawn, as opposed to 3 roofs and 3 lawns for somebody that owns 3 houses. It also tends to cut down on the amount of risk because if a tenant moves out of the apartment then one can still rely on the cash flow from the other tenants. But when the owner that is renting a house has a tenant who moves out, then there is no money coming in until he or she can find a new tenant. Although multi-units cost more than single family units, one can always look around for triplex and duplex houses that go for just about the same price as a single family house, except there will be more tenants which results in more cash flow.

             Since multi-units cost more than single units, the profit that is earned at the time of the sale is also greater because of the appreciation accumulated from the acquisition price. If a $120,000 single unit house appreciates at 10% it will be worth $132,000 as opposed to a multi-unit apartment with a price of $320,000 that appreciates at 10% will be worth $352,000, which ends up being $20,000 more. Another thing to take into consideration when looking to invest in multi-units is that there is less competition when comparing it to the market for single units. There is a lot less competition than there is in single family houses. Why? Because no one is out there teaching how to do it and all the single family guru’s make flipping single family houses sound as easy as chewing gum in the dark (Lindahl 2011).  obviously, investing in a market where there is less competition increases the opportunities to make a profit.

             Investing in a multi-unit place might be easier said than done, as there are a couple important things one has to take into consideration in order to minimize risk and maximize profits. It is not just about securing a loan, purchasing a building, housing a few tenants, and watching the money pour in. In order to minimize risk as much as possible one has to due diligence and perform a thorough rental market survey. It is imperative for investors to incur about rental market trends for apartment vacancies, cap rates and future developments that might have a positive or negative effect on the property. When scouting for a potential place to invest, it is important to look out for rental signs and ads. These may be clues that rental units are down. However, if it is the opposite then it can be a good place to invest. If an investor is going to take the plunge into investing, then it is important to learn the fundamentals.

             Overall, there are many advantages when it comes to investing in multi-unit apartments. Savvy real estate investors have multi-units as part of their portfolios along with single-family units (Koonar 2009). For young investors who are skeptical about investing in a large project, they can always start off with small single units until they gain the experience and knowledge necessary in order to succeed in real estate investing. Once they have the confidence and are looking to make serious money, then including multi-units to their portfolio will be a smart choice.

                                               Works Cited
Kris Koonar (2009). Begin With Single-Family or Multi-Unit Rentals? Retrieved from

Kim&Charles Petty. Advantages Of Investing In Multi-Units. Retrieved from

David Lindahl. (2011)The 5 Money Making Advantages Of Multi-Unit Investing. Retrieved from

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