If there is an investment that has withstood the test of time, it’s becoming a landlord. Well, nothing has changed in the last few centuries. According to most millionaires, real estate is still the best investment around today.
Fortunately, you could be receiving some of the same benefits with just a small initial investment. Let’s talk about the pros and cons of investing in multifamily properties.
Why Invest in Multifamily Properties?
First, we’re going to start with the pros. There are plenty of reasons why real estate is so popular, so here are some of the key benefits of investing in multifamily rental properties.
Cover Your Mortgage
In some cases, you may just be looking to purchase a home for yourself. In that case, why not purchase a multifamily property and allow your tenants to cover your mortgage?
Conversely, this is a great way to save money over time and generate some easy income later in retirement. Essentially, you’re living there for free as long as there are tenants inside and your income covers the mortgage and property taxes. Once that mortgage is paid off, it’s almost entirely profit!
Earn Regular Income
Steady, predictable income is one of the key reasons why investors love rental properties. Sure, there are times where you will be between tenants or you need to spend money on a major repair, but relatively speaking, the revenue is very consistent.
Especially during retirement, this is a huge benefit, as a $1,500 revenue increase per month could be the difference between needing a job or not.
Value Increases
Let’s say you consider another type of investment like peer-to-peer loans. Well, once they pay the loan off, you’re left with nothing to show for it but the interest that was added on.
However, with a rental property, not only are you generating monthly income that could pay off your investment within five to fifteen years, but you will still have the property to resell as you please.
Over time, especially with proper upkeep, the value of your investment is likely to increase, especially if you manage to keep tenants available. If you earn a 100% return from rental income in ten years and resell for 120% of your investment, that’s a 220% return in ten years!
Keep Up With Inflation
Raising rent prices is an excellent way to protect yourself from rising inflation. While most investments allow for this, it comes with significantly less volatility than the stock market.
Low Barrier of Entry
In most cases, you can purchase your own rental property for as little as 15% down, assuming you have the right credit score. Of course, if you’re handy or if you know a little about the industry, you could save a lot of money in ongoing costs, but that isn’t necessary to get started.
Now, you should always crunch the numbers and use an investment property calculator to ensure you can afford it. However, anybody with a decent credit score and enough cash on hand can become a landlord. The best part is that once you have one, it’s a lot easier to get a second and a third!
Downsides of Investing in Multifamily Properties
Of course, every investment comes with risks, and some of them are dealbreakers for certain investors. Let’s talk about some of the key downsides of multifamily investment properties.
Volatility
While it isn’t as volatile as the stock market, no investment is entirely safe. If the value of your building declines, jobs move out of the area, or if you can’t find the right tenants, then it could seriously harm your investment.
Unfortunately, there are certain things that are entirely out of your control as a landlord. Sometimes, neighborhoods go downhill unexpectedly, natural disasters strike, and more.
Luckily, you can combat this by choosing the right property. Location and the age of the building are the two major keys to success. A newer building that’s near a school, an important landmark, a downtown area, or public transportation are generally the safest investments.
Also, insurance can help prevent some of the most tragic examples from happening. Getting the right insurance policy could save your entire investment, so don’t skimp on that!
Income Isn’t Entirely Passive
While investing in rental properties isn’t as complicated as purchasing a business, there is still work involved. How much or how little depends on the location, tenants, and age of your building. However, you can expect to work at least a few hours every month.
Responsibilities include rent collection, tenant screening, maintenance, repairs, and more. When you’re in between tenants, there’s a lot more work involved.
However, with the right services, like the ones you would receive from this rental property management company, you won’t have to worry about that. For a small portion of your rent, they will cover everything, allowing you to sit back and enjoy the passive income.
Property managers turn your investment into an entirely passive income machine. They handle tenant screening, maintenance, 3 am repair calls, rent collection, lease agreements, and so much more. Again, that’s all for a small portion of your rent.
Also, experienced property managers know how to help you get the most out of your investment and minimize risk, which dramatically decreases volatility.
Don’t Wait
Now that you know the pros and cons of investing in multifamily properties, you can see why it’s such a popular investment. The sooner you do, the sooner you can start generating passive income. Start your retirement nest egg today and stay up to date with our latest investment news!
