What is multi-family real estate?
When the subject of multi-family real estate comes up, many people’s minds immediately jump to large apartment complexes or developments. Multi-family can mean 2, 3 or 4 units which is a good way for investors to start to build their income and portfolio.
However, at some point or even right away, real estate investors will look at multi-family real estate investing, generally buildings with 5 or more units, often as a way to quickly scale their portfolio.
What to consider with multi-family investing
When it comes to multi-family investing there is more for you to take into consideration, including;
- Searching for and finding the right properties can be a lot more time-consuming. Multi-family isn’t necessarily listed under one platform like those listed under the MLS and required digging for multiple sources.
- The due diligence required is greater given there is more ‘building’ to look at and more numbers to crunch. There are generally more inputs with regards to income such as the rent roll, other income such as laundry or storage as well expenses, such as contractor expenses for regular lawn care or snow removal, administrative fees for bookkeeping or onsite management personnel. It’s best to have a high-level filtering process to assess if the price per door and the percentage of annual rents to cost are reasonable before spending more time running a more detailed analysis.
- Location can be more critical because you are trying to attract more people to live there, so it’s important to find properties located in areas with higher populations to minimize the risk of vacancy due to market downturn so there are more supporting industries and services that the area relies on. We generally focus on areas with populations of over 500,000 people which meet our criteria when we invest in Calgary and Edmonton in Alberta as well as in the targeted cities in Texas.
However, multi-family real estate investing is proving popular because the upsides can be many.
Three upsides of multi-family real estate investing
1. Bigger and better cash flow.
When you have a single-family property you are only reliant on that one tenant to rent and pay. But that can also mean with rental increase restrictions in many places you may start falling behind with the income you are getting versus your costs of running the property.
With more units, it is more likely you will have tenant turnover and you can then rent to new tenants at market rates. This is still true in markets like Alberta does not have rent control like many provinces across Canada. This can also have an upside with the value of the property as the net operating income (NOI) is one of the key factors in determining the valuation of a property in multi-family, which isn’t the case in houses.
2. Property Management
While many real estate investors may look at multi-family real estate as a faster way to scale their portfolio, another sometimes forgotten benefit is that economies of scale can mean hiring a property manager starts to make sense.
With certain size buildings, this can even mean having a resident apartment manager looking after the place and living on site. This or having a property manager can be particularly appealing if the multi-family property is not local to you or is even out of province or state or out of the country.
Such as the 8-unit new construction townhomes we offer to our partners, they are all located within the same vicinity so we have contractors that will take care of a number of them as a package and in Texas, with the number of units we are looking at in the hundreds and in the same city, we will be leveraging a property manager that will be dedicated to only our buildings.
3. Better financing options.
When looking at single-family real estate investment properties lenders can be cautious and mostly look at the owner’s qualifying income to determine if their income can cover the cost of the mortgages.
For multi-family, the lenders look more at what income the building itself can produce. That being said, they do require a personal guarantee from someone with the networth to support the building should anything go south. That doesn’t necessarily have to be the owner though so it offers more flexibility to make the purchase viable.
In Summary
The initial time and work involved in investing in multi-family property may be greater but can be outweighed by the better cash flow, more attractive financing possibilities and enabling you to hire help in overseeing the property.
This may all still seem a little too much but you are interested in multi-family real estate investing as a strategy. That is where we can help and discuss with you the various partnership opportunities we have. We focus on new construction of small multi-family buildings in Edmonton and Calgary as well as larger value-add properties in Texas. Our focus on these markets and these particular assets are very strategic and we can share why with you.
If this is something that is of interest please reach out to set up an initial conversation https://www.trucapitalrealestate.com/contact-us-2/