Investing in real estate is usually a smart financial decision. While it may be tempting to purchase a single-family home, you may see more gains from investing in a multi-family property. Here are five reasons you may want to consider purchasing a larger rental.
1. Distributing Risk
If you own property in an in-demand area, you may not have to worry about vacancies. Still, for most landlords, vacant units are a way of life. With a single-family rental, you must pay the mortgage until you find a new renter. While you also must continue to pay the loan on a building with several units, you insulate yourself from vacancies. That is, as long as all your tenants don’t leave at once, you can use rental income to continue to pay the mortgage.
2. Streamlining the Purchasing Process
Purchasing any property is a bit of an effort. After all, you must go through offer and acceptance, inspections and repairs and loan applications. When you purchase single-family units, you have to deal with administrative tasks for each property. By contrast, when you opt for a multi-family rental, you only have to go through the purchasing process once.
3. Benefiting From Scale
When you invest in single-family units, chances are good they aren’t next to each other. Instead, they may be spread out across a city or state. When you have to make repairs or improvements, you pay a premium to get the work done at each location. That isn’t the case with a multi-unit building. Instead, you pay a lower cost to do all the work at once.
4. Facing Fewer Competitors
A quick look at the classifieds in any given area often shows hundreds of single-family properties. To compete with those, you must offer incentives. With a larger building, though, you usually have more income. As such, you likely can drive down the competition by grouping all your rentals into a single building.
5. Taking Advantage of Forced Appreciation
To buy a single-unit property, you usually obtain a regular residential mortgage. Since multi-unit buildings are commercial investments, you can often use forced appreciation to improve your bottom line. Check with your accountant or another tax professional to better understand forced appreciation.
If you are looking to diversify your portfolio, you may want to purchase rental property. While there are many advantages of investing in a single-family unit, you may reap more benefits from buying a multi-family building.