Reluctancy accompanies any and every investment opportunity. But did you know multi-family real estate investments have been yielding strong and stable returns for a very long time now?
According to the 2017 report from CBRE, multifamily investors have earned an annual average return of 9.75% between 1992 and 2017, which is higher than any alternative sources of passive income. Yet, investors hesitate before taking up a multifamily investment deal. Is it because of the humungous size of the project or the challenges that they think might arise?
Read along and bust some of the myths about multi-family passive investing that have levelled over the years-
1. It is expensive
At the first look of the deal, multifamily projects display an amount that seems impossible to raise. But, thanks to syndication- it is not the responsibility of one investor to put in all the money required. In a single-family investment, you are the sole investor (besides the bank you might take loan from) and after a considerable period, there comes a point where you are rendered helpless in terms of investing in a lucrative deal that might not stay in the market for long. However, as a multifamily investor, you can choose to “Divide and Rule”. A group of like-minded investors come together and pitch in the amount they want to invest and with the help of a bunch of such investors, the capital is raised.
An added benefit kicks in here- multifamily projects can diversify your portfolio in a shorter span of time. Rather than investing in one unit at a time, you invest in a property with at least 20 units.
2. Vacancies will affect the profitability
Single-family homes are anything but difficult to oversee, however on the off chance that an occupant moves away, you are 100% empty. Your income yielding investment can go from 100 to 0 in one night. Multifamily properties have the benefit of a non-stop stream of pay from numerous inhabitants, making multifamily unquestionably more steady than single-family properties. Even if one tenant decides to walk out of the house in the night, you will still have other tenants living happily and you can go on to generate a passive source of income.
3. Financing is difficult
Contrary to conventional knowledge, it is easier to find funding for multifamily investment deals as banks view such acquisitions as a safe stable income-producing investment. Private lenders or banks evaluate the credit for a loan based on the property itself and not on the investor’s financial capability and credit score.
Moreover, when you enter the investment deal as a passive investor, the responsibility of procuring capital and finances lies with your chosen syndicator.
4. Maintenance is hard
Let us paint a little picture. You have several single-family investments in your portfolio, and they require a renovation, and now you have 20 roofs that need your attention. But had you been a multifamily investor, you would only have to pay for one roof that is to be renovated. Yes, with multifamily project comes “Economies of Scale”. In any case, more regularly this idea kicks in when you have 60-100+ unit securing.
Multifamily units cannot be invested in without a property manager. You need a professional manager to deal with gas leaks, renovations, trash, tenants, and emergencies. But as mentioned in the last point, you are a passive investor! All of these things would be looked after by the syndicator, his team, and the property manager.
Regardless of whether you are new to putting resources into multifamily properties or you are a prepared ace, rumors abound and myths exist that numerous investors accept to be valid. The key is to recognize these fantasies and uncover reality for the last time. Go with an accomplished and well-established syndicator, do your due diligence, and just in case you have inquiries regarding the deal — by all means, inquire! Legitimate answers and compiled data will assist you with settling on an educated choice regarding your investment opportunity.