Building Passive Rental Income -- Multifamily Homes – Duplex, Triplex and Quads

 

 

 

Photo of Colorful Buildings Under Blue Sky

 

 

Multi-family Homes Provides Good Entry Into Real Estate Investing.

 

There are many reasons why buying a multi-family homes makes sense. Purchased properly, they can cash flow very well, and serves both as a solid investment as well as personal residence for the investor.

 

Having Your Cake And Eating It Too….

If you are looking for a primary residence, a multiunit building will provide you, your home and the rest of the units rental income can be used to pay the mortgages and expenses. So you could purchase a place to live and have your tenants pay for you to live there as the property increases in value. You will be building equity in two ways 1. Tenants rent pays down your mortgage and 2. Property increases in value over time.

 

Diversify & Consolidate…

Multi-family homes allow the investor to diversify income and consolidate expenses among multiply units “economies of scale”.  Investors understands that if a single family property experience vacancy, they are out 100% of the rent.  In a multi-family property, if one unit is vacant, the other tenants rents are still coming in that might be able to cover the expenses. 

 

Why Invest In Multi-family Homes...

This is a great way to get a head start in building your real estate portfolio of income generating properties. In essence you are buying a single building while gaining multiple rental units. This allows you to build healthy cash flow much more quickly than single family homes.

 

Benefits Investing In Multi-Family Homes….

Investing in multifamily properties is a favorable strategy among investors, because of its multiple streams of income. As an investor, the advantages of owning a multifamily property include:

  • Less Risk:  You have less risk because of the multiple income sources, if one tenants move out you have the other tenants rent still coming in to take care of the expenses. Unlike single-family units, when a tenant moves out you lose all the income.
  • Higher Value: The more income a property receives, the higher the value is. Therefore, these investments are generally valued higher than single-family homes.
  • Passive Income/Cash Flow:  Multiple income from one investment, this leads to a more stable and predictable revenue source.
  • Scalability: Multifamily homes provided economies of scale. Rather than purchasing one property at a time, these investments allow for the acquisition of multiple properties within one building. They are perfect for those looking to grow their real estate investment portfolio.

 

If your goal is to acquire a robust portfolio of rental properties as rapidly as possible…. Consider multifamily homes.

 

Location….

Location, location, location……. You have hear it before … the number one rule in real estate.  This is very important to multi-family homes … the area has to appeal to renters. Must have high demand, high growth and well maintained neighborhood. Buy in the path of progress, you want to buy in an area that is likely to continue to develop and therefore prices and rents are likely to rise over time.

 

Buy and Hold Strategy…

Multi-family properties are a buy and hold strategy so you must analyses the CAP Rate of the property. To calculate the cap rate, take your monthly NOI, and multiply it by 12 to get the annual number. Then, divide that number by the property’s current market value. The key thing to understand about the cap rate is that higher is not always better. A higher cap rate generally denotes higher risk and higher returns. While a lower cap rate, conversely, indicates a lower risk and lower return.

A good rule-of-thumb is to shoot for a cap rate in the 4%-8% range. Anything lower and the investment may not have enough yield. Anything higher, and you want to be sure you understand all the risks associated with the investment.

 

These types of properties will generate passive income.

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