Why Multifamily Investment Companies Invest in Properties with 50+ Units

Multifamily Investment Companies aim to protect their wealth from negative inflation and increase the value of their assets. While there are many ways of investing such as forex trading, stocks and bonds, real estate remains a stable and lucrative investment. Unlike other investment options real estate is less volatile and has consistent, steady income and growth potential.

There are many opportunities for investments in real estate, including land sales, retail, mixed-use developments, and residential and commercial buildings. Commercial multifamily real estate is the best option for consistent passive income and steady positive cashflow for most investors.

First let’s go over the basics: (if you already know all about commercial real estate, you can skip to the section titled “Benefits of Investing in Commercial Multifamily Property with 50+ Units“)

What is Commercial Real Estate?

Commercial real estate is a property that helps you generate extra income. The owner does not have to occupy the property in this investment option. There are tax and other legal implications such as maintenance, insurance, and lease contracts when investing in commercial property.

Some investors are interested in commercial real estate they can easily manage, such as single, duplex, triplex, and multi-family units. On the other hand, some are willing to sponsor managers to take care of their multifamily units. We shall concentrate on the commercial multifamily, their benefits, and how to get into such investments.

Single-family rental homes have dominated the real estate sector for a long time. However, this tradition is changing rapidly because of living in highly populated areas due to work and educational commitments. Many people have experienced living in apartments and want to live in rentals with basic functional units.

A multifamily real estate has two units or more. Each unit has a functional bathroom, living room, bedroom, and kitchen. An apartment or building becomes a commercial multifamily real estate if it hosts five or more such units. Naturally, a commercial multifamily real estate property serves a given demographic, such as students, expatriates, and retirees. Examples include high-rise apartments, garden apartments, and student housing.

Most investors begin by occupying one of the units and renting out the rest. In return, you will enjoy loans at a lower interest rate and lower down-payment fees. It is easy for most owner-occupied commercial multifamily units to manage and attend to maintenance requests.

Luxury Class of Commercial Multifamily

This class consists of luxury apartment communities that have the following features:

• The complexes are less than 10 years old
• Sit in popular and desirable neighborhoods
• Access to high-end amenities such as gyms, dog parks, pools, and clubhouses.
• Built with modern, high-quality materials such as hardwood floors, stainless steel appliances, and granite countertops.
• Require the highest investment
• They garner the highest rent prices
• Have more financing options attracting low-interest rates and longer fixed rates
• Investors aim at appreciation benefits

Benefits of Investing in Commercial Multifamily Property with 50+ Units

Commercial real estate investments require thorough study and careful financial planning to ensure the minimization of risk to the investor. Nonetheless, the high rate of returns entices people and multifamily investment companies to continue placing their stakes in commercial multifamily investments. A safer option is utilizing the knowledge and infrastructure available to experienced multifamily investment companies; having an experienced commercial broker put together a pro-forma for financial forecasting and strategy creation, is crucial.  Below are some of the benefits. 

a) Easy to Start

It is frustrating when people trying to penetrate markets encounter numerous barriers. It creates room for a monopoly that may not work for the investor. Entry into the real estate world through multifamily units has very minimal barriers. The many sizes and shapes of the units contribute to this advantage.

You can begin by investing in nominal dollars and then investing in small buildings. At times, you may not be sure where to begin. It is important for you to enlist expert advice or get a commercial real estate broker to help you understand the market.

b) Creates Multiple Streams of Income

Investing solely in your profession or channeling all your money into a single business raises the chance for risk. It’s wise to diversify your streams of income to minimize risk and investing in a commercial multifamily property with 50 units or more helps you diversify even further:
Every unit is rented out or leased separately, depending on the customer’s needs; each unit has a set price different from the rest. For instance, in the same 50 unit property a two-bedroom house and a one-bedroom house can rent for vastly different prices. As such, it allows you to have the ability to offset the costs of unoccupied spaces further minimizing the risk to the investor. Although offices and business premises may close down when they run out of money, people are constantly looking for residential places to lease.

c) It is Easy to Add Value

Among the significant benefits of adding value to your property is the fact that it increases your income margin. This investment also makes it easy for property valuation. You can deploy an expert to calculate your unit’s current and future worth. Thus it is easy to make projections in the percentage of profit you would expect. With the emerging trends in real estate, customers have different tastes and preferences. Getting information on these preferences gives you the advantage of building a property that matches the market demands. 
Investors can improve multifamily units by:

d) Tax Concessions

The government recognizes the efforts that individuals make to provide housing. As a result, it gives tax breaks to investors. The government gives these tax incentives according to the classification of your property. Due to the nature of investments in real estate, most people partner and crowdfund.

There is additional revenue that you can plow back into an investment with the tax incentives. When your tax is deferred and you accumulate tax-free capital, you can maximize on the 1031 exchange. The multifamily units’ range of properties makes it easier for a 1031 exchange. According to the 1031 exchange rules, one can only exchange property of similar or higher value.

e) Wide Variety of Multifamily Products

In the real estate market multifamily units have the most diverse products. Individual units can have a range of sizes, layouts, colors and features. There’s a wide range of property types, from small housing properties to large apartment buildings. Economists know that when businesses have a large scope of products, consumers benefit the most.

However, the investor and entrepreneurs also share in the benefit. Like any other industry in the world of business, differentiation is a key strategy in real estate. The ability to provide a unique product allows you to thrive. Multifamily apartments allow a businessperson to employ innovation, thus producing unique styles and offerings. 
It also ensures that a  quality and compatible product be delivered to the customer; through these varieties one can identify what works best for their target market. It also enables the entrepreneur to compete in other frontiers other than the selling price.

f) Easy Management 

When acquiring a property, you want to make sure that your tenant’s interests are served. At the same time, you will make an effort to maintain the beauty and value of the building. For you to efficiently carry out the tasks, you will need time. If you live some miles away from the location, it may be expensive to monitor your property. It is even more cumbersome if you have various properties in different locations.

It may not be possible for people who have 9-5 jobs to attend to the client’s needs. Multifamily properties have all units under a single roof, making it easy to oversee. Its arrangement makes it easy to manage, especially if you live nearby. This type of investment makes it a reasonable option for busy investors to contract with a property manager.

g) The Acquisition has Reasonable Cost

High prices may deter one from investing in a lucrative venture. Multifamily units are among the most affordable properties in real estate on a per-unit basis: they  have a lower risk, and the price is relatively low. However, a first-time investor may not have sufficient resources. It could be difficult to make a comeback in the business if things do not go as expected. Multifamily investment companies can help lower the risk, consider working with an experienced commercial real estate broker if you are a first-time investor. 

Stay tuned for our next blog post where we’ll give you instructions on how to get started with multifamily investing!

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