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What are the pros and cons of multi-family housing to consider before investing?

November 26, 2018

Multi-families are a good investment but not for everyone. Like all real estate, over time they appreciate in value. After the debt is paid off there is good cash flow. The loan amortizes over time and in effect the tenants pay the mortgage and in some cases the depreciation taken can reduce overall taxes paid.

One of the first questions people often ask is “what makes a multi-family house a commercial property?” Generally, anything larger than 5 units (or doors) is often considered commercial real estate. If the property qualifies as a commercial property, it will require a commercial loan, which are harder to qualify for and the interest rates are higher.

Benefits

The economy of scale is one of the biggest advantages of multifamily housing versus single-family housing. This economy comes in a number of areas:

Time: The time and energy to grow your business focusing on multi-family will be far less than going the route of single-family homes. There are many who have amassed large numbers of units in a relatively short amount of time. The work of locating a property, running the numbers, completing the due diligence, and closing is not insignificant.

Management: It is far easier to have 8, 10 or even 50 tenants all in one location rather than having the same number of tenants spread out over a large geographic area. Also, with a large number of units in the same locale, you increase your negotiation power with your property manager.

Maintenance/Repairs: From the moment the paperwork is signed, there will be things that need attention. With multifamily housing, everything resides under one large roof or area. Not only do you save time with travel, but there is the expense side as well. The cost of repair or replacement for a roof or other big ticket items will be larger. But the cost will be far less than replacing these same items individually and will be amortized over a greater number of units.

Frank D’Ostilio, Real Living Wareck D’Ostilio, (203) 641-7072, frank@wdsells.com

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