What is multifamily housing? Is it worth investing in?

By
Home Inspector with HomesBid

There is a multifamily boom sweeping the country, and it's not just because of a high demand for rental accommodation. Millennials are increasingly starting their own families, working from home more, and choosing to move into their own apartments. They want to be closer to work with better access to public transportation, and they want to live in a more sustainable, community-led environment.

Multifamily real estate, also known as multifamily housing, is an exciting and lucrative market that is growing quickly thanks to innovations in building technology and affordable housing policies. This article will explore what multifamily housing is, why it's such an attractive investment opportunity, how much it costs to buy an existing property and how you can buy one as an investor with little money down.

What Is Multifamily Housing?

Multifamily housing is any residential property that is divided into multiple units, such as apartments, condos, townhomes, and houses. While the term “residential property” can refer to a whole host of property types, multifamily residential properties are built specifically for that purpose. Apartment communities, condos, and townhomes are types of multifamily properties.

Why is multifamily real estate so popular as an investment?

While multifamily real estate is not always a surefire investment, it is a popular one. Demand for apartments has been growing for years as more people choose to rent instead of buying, due in part to the rising cost of living. The combination of the ever-increasing demand and a low supply has caused rents to increase, driving up the return on investment in multifamily real estate. This is especially true in urban areas where demand is even higher.

One of the reasons multifamily investments are becoming more and more popular is because they are a great way for savvy investors to diversify their portfolios. Not only can you purchase a multifamily property and rent it out, you can opt to buy a property with the long-term intention of operating it as a business. It’s also becoming more common to own a portfolio of properties in a purpose-built multifamily development.

Multifamily real estate is one of the most common property types in the United States. It makes up about 35% of all housing, but it’s important to note that many of these properties are owned by the federal government. Multifamily housing is mostly made up of single-family homes and condo complexes rented out to tenants.

The Good, the Bad and the Ugly of Investing in Multifamily Housing

The Good: A stable, growing market with increasing demand.

The Bad: High startup costs and high exit costs.

The Ugly: If done poorly, operating costs can be significant.

The Benefits of investing in multifamily housing

Affordable

Properties in this segment of the real estate market are often much less expensive than houses.

Efficient

Many purpose-built multifamily developments are built with efficient design features and are relatively easy to maintain.

Diverse

Apartments offer a variety of unit types, so investors can choose from a range of property configurations. 

Occupier-ready

Most multi-family developments already have the correct infrastructure in place, which means a faster time to occupancy.

Property management for multifamily housing

Multifamily developments are often run through a property management company. For example, the property management company for the building might own the parking lots and garages, take care of maintenance and security, collect rent and manage any disputes among tenants.

As an investor, you might consider purchasing a property that is managed by a company. This way, you will not have to worry about managing the property yourself while you wait for the management company to collect rent. The management company will handle everything from managing the property itself to collecting rent, to hiring maintenance staff, etc.

It’s worth mentioning, however, that multifamily landlords need to be especially mindful of the costs of property management. This is especially true if the landlord owns multiple properties, as it can cost a lot of money to manage all of them.

In this case, it’s important to consider efficient ways to manage all your properties, including check-ins and checkouts, inventories, fire safety, risk assessments, cleaning, and much more. There’s a lot to factor in. End-to-end property reporting and operations software is a great way to keep track of all the important inspections and reports needed to safely and efficiently run a multifamily unit or portfolio.

Conclusion

Multifamily real estate is a popular investment for several reasons. It's affordable, efficient and often built with sustainable design features. One of the main risks for investors is the possibility of losing money by investing while in an unstable or volatile market. Also, failing to maintain your multifamily property and not conducting regular inspections of important features can also be costly in the long run. Successfully navigate these, and your multifamily investment could be a surefire win.

Comments (2)

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I think it really depends on the region,

Jun 17, 2022 11:06 PM
Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great information.   Thanks for sharing and enjoy your day!

Jul 14, 2022 06:41 AM