Some multifamily home myths, such as recommendations to only redecorate in neutral colors, will barely raise your eyebrows. However, myths like single-family homes are cheaper than multifamily properties will cost you business if you are a seller.
Let’s take the above myth as an example. Sure, the multifamily home is more expensive than the single-family residence. But, that does not consider the spare homes you can lease out. If anything, the rent paid can offset your mortgage payments.
This article scrutinizes the top nine multifamily home investment myths and comprehensively debunks them.
Multifamily Unit Investment Myths Debunked
1. Investing In Large Multifamily Properties Is Too Complex
Investing in a large multifamily property is not that different from smaller ones. It is easier to believe that multifamily is not as complicated as rumor would have it by starting small. Initially, investing in smaller properties can prepare you for the rigors of larger multifamily investments.
Large properties have a lot of moving parts that require more analysis. As an investor, you will find that these parts are different from small properties, but not radically. It’s best to approach operation and ownership matters with an open mind.
The mere thought of the vast operations involved in multifamily investments is enough to cause anxiety and fear, which might discourage some from investing. However, hiring skilled personnel to handle operations will make the process relatively pain-free.
2. Multifamily Investing is Too Risky
Like any other investment, multifamily investments carry their risks. But they are not at the levels of stock market investing. That said, the level of risk varies from one multifamily investment to another.
As an investor, you are at a great advantage if you can find the level of risk you are most comfortable with. You have to research and educate yourself about what to expect from an investment.
As expected, investments that promise quick returns carry high risks. On the other hand, low-risk investments will produce a steady trickle of income.
3. People Can’t Afford Large Properties
It depends on how you look at it. The ordinary person won’t have enough money to buy large apartment buildings. But then again, even large multifamily investors hardly have portfolios big enough to accommodate sizable multifamily unit investments.
However, these investors who can afford to buy these properties often do so through private lenders, seller financing, hard money lenders, investors, real estate crowdfunding, and other means of raising money.
Every entity with a stake in raising investment capital for an investor gets something out of the investment, but the investor keeps most of it.
4. It’s Easy to Make Multifamily Investments Profitable
Many assume you can easily control the value of a multifamily unit by applying the concept of forced appreciation. That involves either or both raising rents and cutting back on expenses. While this seems like an easy thing to do in theory, the reality is much different.
Raising rents may help increase the value of your multifamily investments, but on the other hand, the market controls rent rates. You can’t raise the rent on a whim. Otherwise, you are looking at increased vacancy rates.
Property renovations and marketing campaigns may encourage tenants to accommodate high rent rates, but it takes money to perform these, and there is no guarantee it will work.
5. There Are No Good Deals
The real estate market is in an ever-changing cycle with highs and lows. Often, there is a financial crisis that comes with predictions of an industry decline or complaints about the pricing of materials and assets.
That said, the industry always matches on. There are always opportunities to get good deals regardless of how the market is doing. A good deal is measurable by how satisfactory the outcome is. Here are some of the hallmarks of a good deal:
- There is a promise of high cash flows.
- The deal could also be solid enough to withstand recessions and inflations.
- Also, the property should have the potential to appreciate and increase its value over time.
Such deals may sound too good to be true, but they exist. As an investor, it’s up to you to hunt for them and not settle for anything less.
Expect to face a challenge finding them if you only rely on online resources for information. Research on how to get good deals can help you land a profitable multifamily unit.
6. Investing Requires a Lot of Experience
Yes, having experience in multifamily investing is a plus, but it’s not a necessity.
One hack inexperienced investors use is investing in a small multifamily unit first. As your portfolio grows, so does your capital, experience, and knowledge about the market.
Alternatively, pair with people familiar with multifamily investing to boost your knowledge of the industry.
You can also acquire some multifamily investing knowledge through online courses, or you can self-teach by reading books from industry experts.
7. The Cost of Owning and Maintaining Multifamily Asset Is High
You will have to pour a significant amount of resources into a multifamily property. The cost of maintaining an entire multifamily property is higher than that of a single unit.
It pays to hire a management firm. They will be in charge of managing and maintenance. Once you crunch the figures to assess how much management will cost, you’ll discover it’s a worthwhile investment that saves time and money.
8. Keeping Multifamily Properties Occupied Is Harder Than Single Rental Properties
To keep the multifamily property fully occupied calls for you to invest in marketing strategies to get many tenants. Successful marketing requires a lot of preparation and planning.
Since controlling people is impossible, some units remain occupied even when others are vacant. Although it’s challenging to keep multifamily units fully occupied, it’s no harder than keeping a single-tenant property occupied at all times.
9. Constructions near Your Investment Won’t Affect It
Do duplexes lower property value? Yes, new constructions near your multifamily unit guarantee renting space oversaturation and, subsequently, a drop in property value. One thing that can tell you if it’s good to continue investing in property near new buildings is absorption rates.
To be on the safe side, consider investigating the potential investment’s location. Consider staking your assets elsewhere if the area has a lot of development activity and low absorption rates.
Conclusion
Overcoming the myths about large multifamily investments is a significant part of investing. While most myths are just that–myths, some are true. Moreover, some people believe them, which costs you business.
To be on the safe side, revisit these arguments against housing development highlighted above to ensure they don’t affect the property. That way, you will make the right financial move before signing the dotted line.
