4 CONSIDERATIONS BEFORE INVESTING IN MULTI-FAMILY RESIDENCE RENTAL PROPERTIES
For a new real estate investor, the question of whether to buy a Multi-Family Residence (MFR) can be a tough question. At first glance, investing in a multi-family residence seems to bring more cash flow than a Single-Family Residence (SFR). After all, more units to rent means more money, right? Well, that depends on your long-term goals.
Here are four considerations when investing in a MFR:
- Property Cost. While it’s true that the overall cost of a MFR will outstrip a SFR every time, the per unit cost will be far less. Additionally, your cost to maintain that unit and even property manage that unit will be far less on a per unit basis. Let’s say you owned 2 SFRs and 1 MFR with 2 units. The MFR enjoys economies of scale for things like repairs and maintenance. If you need to replace the plumbing in the MFR, you can do one big job on both units, whereas with the SFRs, you’ll have two completely different plumbing jobs and that will mean higher cost.
- Financing. The main difference you may not know about property financing is that even the best credit banks will limit the number of mortgages you can hold—usually to 10. But, if you finance 10 MFRs with 5 units each, that’s 50 units you can call your own. And you can enjoy the cash flow of all those tenants.
- Vacancy Expenses. This is a no-brainer. If your SFR remains empty, that means the cost for that unit is going to come right out of your pocket. On the flip side, if you have an MFR that’s only partially rented, you can offset some, if not all, of the cost with the rent of the other units that are leased.
- Cash Flow. This has been mentioned before, but it’s worth bringing up separately. Typically, with MFRs, you’ll generate a positive cash flow quicker, especially with new units. That said, as MFRs age, and they typically don’t age as well, more of that initial cash flow will be eaten up by maintenance and upkeep costs, so be sure to keep that in mind as you consider where to invest your resources.
Making the Decision
So, is a Multi-Family Residence investment right for you? That depends on your personal goals and situation. Rental property investing requires time and patience, but with a good partner like Real Property Management Rental Solutions, you can be successful. RPM Rental Solutions is based in Murfreesboro, Tennessee and is a leading property management company for Middle Tennessee. Call us today at 615-900-4067 and learn how we can help with your real estate investment! You can also click here to contact us.