Multifamily Home Investing | You Better Know the Pros and Cons
In last month’s newsletter I discussed the two most important factors you should consider before purchasing a multifamily home. Today, I will focus on the pros and cons of investing in these types of properties.
THE CONS
High Upfront Costs
Of course, the purchase price is going to be significantly higher than if you just purchased a single-family home. You are effectively buying an apartment building with two to four rental units. Remember the old axiom “to make money you have to spend money”.
Difficult to Find Attractive Investment Opportunities
Surprise! You’re not the only one interested in these types of properties. Competition for multifamily homes is fierce but don’t get discouraged. Be patient, do your homework and make sure your financing is ready to go when that golden opportunity arises.
Big Responsibility | A Lot of Work
Congratulations! Your offer was accepted. You are now the proud owner-landlord of a multifamily home. That’s the good news. The bad news – you are solely responsible for collecting rent and maintaining the property. If you don’t have the expertise, time, or desire, then you better get help because it’s your responsibility. That means you will have to hire someone (i.e., a property management company) to manage the property for you. That means your cost to manage the property just went up.
THE PROS
Monthly Cash Flow Potential
One of the major benefits of owning a multifamily home and the reason why investors like these types of properties is the potential to collect monthly rent from multiple units. Ideally, the monthly rent you collect will equal or exceed your monthly operating costs . At least that’s the goal. Just make sure you recruit and retain tenants that will pay in full and on time.
Tax Benefits
Another great reason to invest in multifamily properties is you can claim a tax deduction for maintenance and operational costs (utilities, property management fees, maintenance and repair expenses, insurance premiums, marketing etc.). You can also claim a tax deduction for depreciation. Talk to an accountant for more details.
Ability to Earn Passive Income
Some investors just want to earn passive income. In other words, they just want to earn a decent return on their investment without the drudgery of operating and maintaining it. In those instances, they hire a property management company which gives them the freedom to spend their time elsewhere. You can do that when the property you bought is in a good location and priced right to meet your return requirements.
Wendy Jiang is a real estate agent and member of Team Coyle @ Compass.
About TEAM COYLE
Team Coyle, a professional group of real estate agents at Compass, has more than ten years of experience helping individuals and families buy and sell real estate in the Greater Boston Region of Massachusetts (primarily MetroWest).