06/08/23

Buying & Selling Tips

Should I invest in a multi-family property (2023)?

Are you ready to expand your investment portfolio? Investing in real estate is a great way to earn passive income. Everyone needs a place to live. But in our current economy, the barrier to entry for buying a house is difficult can be difficult for first-time buyers. This makes rentals highly sought after. But it’s still important to weigh risk vs. reward before taking action on an investment property. 

What is a multi-family property? 

Multi-family properties are different than commercial properties. Any rental with more than one unit is considered a multi-family.  With this kind of investment, you can have multiple active leases in one property. It’s important to note that the term “family” is a little outdated here. These properties can include couples, friends, or groups of roommates.

The most common form of multi-family property is an apartment complex with hundreds of units. But the vocab term can also refer to a simple duplex.

Pros of investing in a multi-family property: 

You’ll see money in the bank every month 

One of the main advantages of a multi-family investment strategy is that you have cash deposited into your account each month. In a single-family rental, you’re responsible for the full brunt of the financial burden whenever there’s a vacancy. Multi-family properties have cash coming in from multiple renters. It’s unlikely that your tenants will vacate at the same time. This means you can assume with reasonable confidence that your cash flow will be stable.

They’re easy to finance

Because cash flow is so dependable, multi-family properties aren’t risky for banks to finance. This gives the investor the potential to shop for lower interest rates.  

You’ll see scalable growth

If your goal is to expand your investment portfolio even further, investing in multifamily real estate is a quicker way to grow your wealth than single-family homes.  

There are major tax perks

There are opportunities for tax deductions in multi-family properties. You can deduct:

• Maintenance costs
• Operation Costs
• Utilities
• Property Management Fees
• Repair expenses
• Marketing Costs
• Insurance Premiums.

These deductions work easily as business expenses, making your ROI higher. We still advise that you chat with a trusted tax professional to ensure that these deductions can work with your specific property. 

Earn passive income

Making money while you sleep is always the goal for investors. Large multi-family properties need more day-to-day attention. You’ll want to provide your tenants with services and amenities that build a good reputation around town. But passive income is achievable by hiring a property management company. A good property management company will handle communication, and maintenance, and leave you with the time and energy to focus on your next endeavor.

There’s a simple loan and insurance process

Buying a multi-family property is relatively straightforward. You can buy multiple units with a single loan. A multi-family- insurance company will be able to create a policy for your exact needs.  

Cons of multi-family properties:

Expect an expensive barrier to entry

There’s no denying that multi-family investments are lucrative. But the upfront cost is very high. Even smaller buildings with only 2-4 units can be pricey. Location plays a big role in cost. Multi-family properties in Madison range from $270,000-4,100,000. 

You’ll have to navigate landlord-tenant law

Before you invest in a multi-family property, familiarize yourself with Wisconsin landlord/ tenant laws. It can be a minefield to navigate.

There’s high competition in Madison

Since Madison is a university town, competition for multi-family rentals is high. You’ll need to set your rental rates to be competitive, while also remaining high enough to cover your expenses and see some income. Developing an attractive marketing strategy is key to drawing quality renters to your property.  

Multi-family properties are more to manage

Managing multiple tenants and units takes a lot of time. You’ll be responsible for leasing, marketing, and maintaining your investment. If you have a day job, hiring a property management company is a must. Many investors simply don’t want to deal with the myriad of headaches that coincide with landlordship. Even if you fully vet tenants with background checks and income verification, there are always surprises. Hiring a property management company can alleviate much of this stress and risk, but that of course eats into your profit. Run the numbers ahead of time and make sure that you’ll still see an ROI after hiring a property manager. 

Ready to invest in multi-family properties? 

Click here to start searching for multi-family properties in Madison.