Is Multifamily Property a Good Investment?

Because of its scale in comparison to single-family residential property, multifamily property can be intimidating for investors. It involves a higher level of property management and initial cost, which in turn means applying for a larger amount of commercial property lending. This makes multifamily properties the last option for many real estate investors. But, in comparison to other commercial real estate asset classes like office and retail, it can feel much more familiar. People generally understand the concept of a unit in an apartment, as well as the idea of an annual lease or month-to-month rent. Because of this, multifamily property can be much easier for the average investor to handle, as opposed to other commercial assets.

Does this make multifamily property a good investment? And what are the pros and cons that an investor might face when it comes to multifamily property? 

Lower Risk

Although sometimes larger than other real estate classes, multifamily property is often considered a less risky investment. This is for two major reasons. The first is that even under the most difficult economic conditions, people are still likely to rent units because they’ll always need a place to live. Moreover, several homeowners tend to sell their larger homes and move to smaller rental units during economic downfalls. This means that when the demand for other types of property decreases, the demand for multifamily property remains intact.

Lower risk may give investors access to various commercial property lending options, making it slightly easier to invest in this asset class.

Income and Cash Flow

A common reason for multifamily property’s popularity amongst investors is its potential for cash flow and steady income. With rental income being fairly predictable and the ability to re-lease units quickly after they have been vacated, investors can ensure a steady cash flow. This can make it a little easier for investors to repay multifamily loans.

Multifamily property can also be a great generator of passive income – something that most investors value. If you hire a property manager to see to the daily responsibilities associated with running the property, there’s little to do as an investor. This can be a great investment for someone who does not have much experience in this regard.

Cost and Management

While there are many pros to investing in multifamily real estate, this kind of investment is not without its challenges. Since there is a need to deal with the maintenance, leases, payments and communications of multiple units, multifamily property is management intensive. It can also involve several unexpected expenses and emergencies, since there’s no way of predicting which units may require repairs at any given time. Investors will need to consider a property manager to handle the day-to-day management of such an investment. In addition to requiring excellent management, multifamily property is costly. This, on its own, is a major barrier to entry for investors, especially first-timers. This makes it particularly difficult to get approved for multifamily loans in comparison to other asset types, and competition is often high among investors who are looking to buy the same property.