In my early real estate investment career when I had limited capital, I bought condos to get my feet wet as a landlord and also to get into a very prestigious neighborhood. As I gained more experience and accumulated more capital and equity over the years, I bought multifamily apartment buildings exclusively. A lot of first-time investors thought of condos or single family as the default investment vehicle because the prices are usually lower compared to multifamily properties in the same area. Actually, there are many benefits to buying multifamily properties. Many first time homebuyers can benefit tremendously from owning a multifamily from a financial standpoint. In fact, the more limited the capital, the more sophisticated the planning process. Your first home buying decision can be life-changing and has a profound impact on your financial future.
First, we are not dismissing condo or single-family investments altogether. The benefit of owning a condo is that many condos are professionally managed by a property management company. For a first-time investor, owning a condo in such a professionally managed building is an easy starting point because most issues are taken care of by the property management company. Good companies or property managers will resolve issues in a timely manner after you contact them. Minimal time and effort is required for the landlord. The condo associations make decisions together so individual unit owners don’t have to be as involved, which saves a lot of time.
However, multifamily buildings are still my favorite investment vehicles for many reasons:
You have total control of the entire building: ever recall a time when there was leaking in the ceiling of your condo but you had to call your upstairs neighbors before your plumber can get in to look at all the issues? When you own the whole building, you don’t need others’ permission to access common pipes or heating system when you need to fix anything or perform any upgrades. Also, if you want to add an extra bathroom to your condo unit, sometimes you need the condo association’s permission because the pipes might go through your upstairs and downstairs neighbor’s units. There might also be clauses in the condo documents that forbid certain types of renovations. It can be difficult to perform some renovations if you don’t own the entire building. I have dealt with some renovations to my multifamily buildings to maximize the returns, and it was a relatively hassle-free process.
Multifamily taxes are lower: If you own a 3-unit multifamily building instead of 3 separate condos, your taxes are lower on average for the multifamily per unit. This is because after the multifamily is converted into condos to be sold separately, the taxes become higher. So if you own the whole building you are taking advantage of the economy of scale and the lower tax rates.
Better mortgage rates for primary residence: interest rates are lower for primary residence as opposed to investment properties. So if I own a multifamily building and occupy one of the units, I benefit from the lower interest rates for the entire building including the units in the building I don’t live in. In other words, I get lower interest rates for more units in my building even though I’m renting out the other units. That’s why for first-time buyers it’s a good financial decision to buy a multifamily building if they can afford the down payment. Not only do they get a lower rate mortgage, they can also use the rent from the other units to offset a significant part of their monthly payment. In many cases the rent covers the mortgage completely so the owner basically lives for free.
The opportunity for leverage to maximize return and minimize risks: This is the most important opportunity about investing a multifamily, and makes managing your multifamily worth it due to the substantially higher returns. When you buy a multifamily, you have a unique opportunity to use leverage while structuring your deal in a way that minimizes risk. Check out our for our unique strategies that maximize returns while keeping risks under control. We are not talking about the traditional loan structure. Very few investors know about these strategies and we have tested out these strategies with years of experience. We also have connections with very specialized trusted mortgage companies that can help execute these unique strategies.
For first-time home buyers or investors, what kind of multifamily properties are suitable for getting started? We will provide more tips and analysis in our .