The natural tendency for any new investor is to start small and work their way into the business. This works in some cases, but eventually they will want to move towards bigger deals with higher returns. One of the areas where investors can look for bigger returns is with multifamily properties. The greater the number of units, the higher chance they can reduce their vacancy factor and generate more cash flow. Just by adding only one or two more units scares off many investors and leaves them panicked. However, investing in multifamily properties can be very profitable and a lot easier than you think.
The most common answer to why an investor would not look at a multifamily property is because of the work and headache involved. They may have a single family property or two and feel that is hard enough to manage. It is certainly more work dealing with three sets of tenants than one, but it is typically easier to handle a three family property as opposed to three single family homes. With the three family, you have everything under one roof. You have one driveway, one roof, one furnace and one set of electricals. Dealing with three sets of tenants in one property may not be as difficult as you think.
Sure, there are three sets of appliances and multiple rooms in each unit that have to be dealt with, but once the initial work is done, the units will run themselves. If the amount of work and being available at all times is a concern, you can seek out a property manager. With the extra cash flow coming in from the additional units, paying someone 10% of the total rents received does not seem like such a bad proposition. This frees up your time to look for additional properties while still reaping the benefits of the income generated from you investment.
Every additional unit you have available lowers your vacancy risk. With a single family property, if one tenant stops paying, you have no other money coming in and will have to scramble to save the property. With a two, three, four or more unit property, you have some comfort in knowing that if you have a short term vacancy in one of the units you still have rents coming in from the other ones. No landlord ever wants to deal with a vacancy, but it will not have the same long term damaging effects as if your single family tenant suddenly stops paying.
The formulas are different with every additional unit you add, but the principles are still the same. If you can find good properties and tenants and have quality property managers ready to act, a four unit property will not be any more difficult than a single family one. The financing will change as you will be required to put more money down on anything over two units, but the day to day running of your business will not.
Buying a 5 unit apartment complex may seem daunting, but like anything else in real estate, once you know what you are doing it is not as difficult as it would appear. If you have been shying away from multifamily properties, now is the time to give them a second look.