When the thought of investing in the multi-family arises, people generally think of purchasing a property with multiple living units and putting it out on rent to generate continuous income.
Yes, no doubt it is one way of investment, but everyone cannot handle the responsibilities that come with the landlord. Also, it isn’t the only way you can go ahead to invest your money in multi-family properties.
There are three ways you can put your investment capital directly in multi-family real estate. Besides purchasing rental properties, you can participate in multi-family crowdfunding investments or take shares in a real estate investment trust.
However, the best option for your specific case depends on various factors, including the capital you want to invest, time, risk tolerance, and the amount of income you are expecting from the investments.
So here is detailed information of all three multi-family investment options and a list of consideration which will help you make the final decision for your investment.
1. Buy a multi-family property
This way of investing in multi-family property is the most accessible and most convenient option, which the investors highly prefer. You can look for duplex, quad, or triplex in your area or even larger property for purchase and renting out for generating monthly income.
Generally, it is 2 to 4 unit multi-family properties under the residential sector for financing purposes. At the same time, the one with five or more units falls under commercial real estate. But remember, there are a few drawbacks to this method.
To begin with, buying a rental property is a very challenging way of investing in multi-family real estate. Even when you have a property manager, there is a requirement to give adequate time and energy to the property.
Other residential properties can be inconsistent in terms of income. This is because certain things like maintenance costs and vacancies are complicated to predict in advance with accuracy, and expenses like insurance and property taxes can fluctuate significantly from one year to another.
Additionally, the rental properties are tough to resale and require initial commitments. However, on the positive side, by purchasing a rental property, you can generate monthly incomes quickly and build wealth over time.
As per the stats, about 9 out of every ten millionaires have used this method to earn their fortune. Thus, it is clear buying a multi-family property undoubtedly comes with solid returns.
2. Get involved in crowdfunded real estate investment
Compared to the other methods, real estate crowdfunding is a new investment method, but it comes with great returns. Here’s an example to explain. Let’s consider an experienced real estate investor who wants to purchase an apartment complex at a rate of $5 million.
Besides this, he is ready to spend $2 million to fix up the unit, include some additional amenities, and then put the apartment on rent to generate income. After five years, the developer anticipates the selling price of the property to be $10 million.
But the developer can get only a $4 million loan from the bank, and he has $1 million for the investment. Thus, to accumulate the other $2 million, the developer has to consider the opportunity of generating from real estate crowdfunding platform and offer some benefit to individual investors.
Some reputable crowdfunding platforms like Crowdstreet and Reality Mogul can be highly beneficial for you. So if you have made up your mind to invest in multi-family real estate, it can be a great option.
But you must know this method comes with a high type of risk. However, the potential risk is justified by the amount of return you will get. But it is essential to realize the risk and then make the decision.
3. Buy residential REITs
It is by far the easiest and most cost-effective measure of investing in a real estate property. The REITs are a specialized company designed to help investors put their money in the real estate market. Most companies are publicly traded, meaning you can take help from a broker to make a purchase.
The REITs pay their shareholders 90% of the taxable income in the form of dividends. Thus, it makes a great source of passive income investment, especially for retirement accounts like IRAs.
Most REITs specialize in a single real estate asset, some in the office building, shopping malls, while the others invest in mortgage and financial real estate. Some consider putting their money in residential properties. There are some residential REITs which helps to cure single-family home, but the majority of them invest in apartment buildings.
Which option is the best for you?
In general, there is no one way which will fit in the requirement of all. The best type of investment depends on your specific condition, which you have to decide based on various factors.
• Capital requirement
The three investment opportunities discussed here range from most capital-intensive to the least. For purchasing a multi-family property, you must be prepared to pay at least 20% of the purchase price down and overestimate the reserve requirement and closing cost. The crowdfunded real estate investments are at least $25,000, while the REITs can be bought by purchasing one share of the company.
The liquidity of all three ways varies greatly. You can consider selling a multi-family property whenever you want but remember it will take several months before you get a good offer. On the other side, the money you invest in crowdfunding is tied up for several years. However, in REITs, you have the option to sell immediately with a simple click.
• Desired level of involvement
Even when you have a property manager for handling the operations of multi-family rentals, they require some time and commitment from your side, especially in the shopping and purchasing phase. While the other two are a passive way of investing in multi-family real estate. Thus, you must know the involvement you want in the property and then decide.
• Risk tolerance
There is a varying level of risk associated with all three ways. Generally, it is the crowdfunded real estate which is the highest risk yet high reward potential. The crowdfunding comes with low execution risk, while the other intends to bring in stable income and steady appreciation.
• Income requirement
If you plan to generate income from the investment, it is a major factor to consider. Generally, crowdfunding investments do not bring any immediate payment. Thus, you must choose a way which will help bring in fast income.
The best course of action is to decide the things you are currently in and then select a multi real estate investment that makes the best sense.
Take professional help to decide the best.
Deciding for investment in multi-family real estate can be challenging. Having professional assistance during this phase will be highly beneficial.
Private Capital Investors is the best company to help you identify the pros and cons of all the ways and then invest in the right property. With professional assistance, you will make an investment that gives the maximum benefit for you. So do not wait and contact the company to get the best.