- Cash Flow – Investing in multi-unit properties is, hands-down, the best way to generate sustained monthly cash flow as an investor. Nearly any other type of ownership requires losing money during the period of ownership and until the date of sale, but property management will generate as much monthly income as you determine (based on the size of your investment and the extent of your efforts to keep units occupied).
- Economies of Scale – The logistical difference between investing in 5 single-family homes for rent, and a single 5-unit building for rent, is the difference between constantly repairing and maintaining 5 properties, and constantly maintaining and repairing 1 property. It stands to reason that if 5 different families pool together to only use one roof, one lawn, etc., then it will be much easier to manage those 5 families (for practically the same income as managing 5 separate properties).
- Less Competition – For whatever reason, competition for investing in single-family homes is and has always been very high. Despite its opportunities for major active and passive income, multi-unit investing does not attract the same kind of mass appeal that single homes do. This may be due to the shear number of amateur investors out there, who think a multi-unit investment is too major for start-up. It may simply be because property management is not always a glamorous gig. Whatever the cause, multi-unit investors enjoy more leverage in selecting and negotiating deals, due to a relative absence of competition.
- Hiring Management – With bigger multi-unit investments come bigger monthly cash flows, and a potential for wider profit margins. In many cases, this means owners hire management companies to deal with all repairs, maintenance, tenant-related issues, etc. Now you’re really cooking! No direct involvement, sustained monthly income, and freedom for leisure or expansion of your business!
- Pay-Day – The final major advantage of multi-unit investments is that they can appreciate more than single homes (not in terms of percentages, but dollar amounts, since they are generally more expensive than single-family homes). Multi-unit investments over 4 units are valued primarily on cash flow than on comps. Therefore, if you can raise rents as rental values increase due to the natural cost of living expenses and reduce operating expenses by improving efficiencies, the overall value of the property can increase incrementally by the number of units you own. This means that when it comes time to sell, you should make a hefty sum (and remember, you’ve hopefully been earning income during your entire period of ownership). It’s a smart investment if managed carefully and worked diligently.
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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.