It is no secret that investing in multifamily properties can provide significantly more cash flow than solely investing in single-family properties. In this blog post, we will discuss why investing in small multifamily properties can be a great investment vehicle for all investors.
Typically, small multifamily properties are properties containing two-four units within one property. In the real estate world, these properties include duplexes, triplexes, and four-plexes. The difference between what real estate investors call “small multifamily” and “large multifamily” is the ability to attain a conventional loan from a financial institution.
Small multifamily properties allow for the owner to obtain property using an owner occupied loan or a conventional loan whereas if you decide to buy a larger multifamily property that has five units or greater the real estate investor will need to obtain a commercial loan to obtain the property.
Why Small Multifamily Investing
Investing in small multifamily properties can be very affordable, in fact, these properties can be just as affordable as buying a single family home. Depending on the market, the process for buying a single family property will be no different for small multifamily properties. On the other hand, of course these properties are more affordable than larger multifamily properties due to the number of units, but also the type of loan necessary to obtain a large multifamily property.
Due to their affordability, investing in small multifamily properties gives first time real estate investors the opportunity to gain multiple units within their first investment property. By obtaining a multiple family property first, they will be able to build momentum and experience as an investor.
Easier to Manage
Small multifamily properties are typically easier to manage than larger multifamily properties. It is significantly easier for a landlord to monitor the tenants of four units vs fifty units. Therefore if you are a new investor that wants to self manage, it can be easily achieved through small multifamily. With that being said, hiring a property manager is always on the table, but just isn't necessary depending on your goals.
The Ability to House Hack
Small multifamily properties will allow investors to house hack!
House hacking is a strategy in which the property owner rents out a portion of their primary residence to generate rental income to offset their mortgage and other expenses within the property.
This strategy is typically done with a multi-family unit but can also be done in a single-family home by renting out extra rooms. Since you will be living in the property, you will be able to obtain an owner-occupied loan for the investment property. With this loan, you may qualify for a down payment on the property anywhere from 3.5% - 10% of the purchase price.
The ability to have an owner-occupied loan is the main reason why house hacking is so powerful and this type of loan is only available for single-family and small multifamily properties.
Gain Valuable Experience as an Landlord
Lastly, small multifamily real estate investing will give you the ability to learn how to become a landlord in a very low risk situation.
By having 2-4 units on one property you will be able to gain the necessary experience required to be a landlord so then when it's time to move to large multifamily and apartment buildings you won't make a costly mistake.
Small multifamily units give many real estate investors the ability to learn about large multifamily before they're ready to make the next big step.
In summary, small multifamily properties can be a great entry point for beginning real estate investors.
Not only are they profitable investment vehicles due to the constant cash flow, they also have other positives such as house hacking, landlord experience, and they are easier to manage than larger multifamily units.