Construction of multifamily housing is on the increase. Around a third of new residential construction projects are now for multifamily properties. There are various reasons for the increase in popularity, and it isn’t just a reflection of the economy. With returns from stock markets and other forms of investment performing poorly, investing in multifamily property developments has become very attractive.
There are several options when it comes to property investments, but multifamily has advantages. Commercial and industrial properties are at risk of sitting vacant for long periods. Retail shops and shopping centers can be vulnerable to periods of recession. People will always need places to live, so investing in residential properties is generally low risk. Lenders recognize that loans on multifamily properties are paid by rental income from tenants, and this means they are willing to offer lower interest rates than for some types of mortgage.
Carrying out some local research can increase your chances of success with multifamily home investments. Once you have an area in mind, check the availability of rental properties to see if demand is increasing or decreasing. A high number of vacant homes is a sign that the local market is saturated. If there are lots of homes available in the area you’d like to buy a property in, you may need to be ready to accept lower rents. Alternatively, you may have to be less selective about the type of tenants you are willing to accept.
A more experienced property investor could consider buying run down multifamily housing and returning it to its former state. This can be risky if major repairs are required. You should be confident that you have reliable contractors who can complete the work to deadlines before following an investment strategy like this. It can be very profitable if a property is in the right area, but costs can spiral out of control if work isn’t managed carefully.
Applying for commercial loans is a more complex process than arranging a loan to buy your own home. Working with a finance company with specific experience and expertise in multifamily homes can help you to avoid the potential pitfalls. Lenders need to be confident that you understand what’s involved in property investing and that you have accurate cash flow figures. There are ongoing expenses to be taken account of when you own multifamily properties.
Another consideration when investing in property is whether to appoint a property management company. Dealing with routine repairs and issues with tenants is often time consuming, and a property management company can take some of these headaches away. A couple of hours a week dealing with phone calls and visiting your property can be difficult if you’re working.
One of the reasons some investors avoid buying multifamily homes is the concern that they may not be able to find or retain tenants. If you buy a property in the right area and treat your tenants well this isn’t an issue. If you don’t want to deal with lettings yourself, a property manager will be able to deal with the process for you.