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Interested in investing in multifamily real estate? Keep reading to learn about the types of investments available, how to earn a solid return, and ways to get started in multifamily investing today with virtually any budget.
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Investing in the multifamily real estate market is a great way to earn some passive income. It’s always a popular market, as there are options for every price point. While searching for the best investment, be sure to consider the financing for the type of multifamily property you are pursuing as well as finding the best interest rate. With the proper cash flow coming from your rental properties, your monthly income can ultimately set you up to live in luxury — and make money while you sleep. But do your research first. What kind of multifamily property do you want to invest in?
Types of Multifamily Properties
There are multiple types of multifamily properties available to invest in. These are broken down by property class, size and style.
Multifamily property classes
- Class A is the highest class of multifamily properties and is found in highly desirable locations. These are typically newer buildings built within the last 10 years or, if older, that have had a major renovation. A variety of upscale amenities may be offered in these deluxe accommodations. These could include a swimming pool, gym or tennis court, depending on other competing Class A buildings in the area. This type of housing also is known to have high-end interiors as well as exteriors, built with quality and attractive materials.
- Class B multifamily real estate is older but still of good quality and condition. These buildings are typically about 20 years old and may be in need of some updating or a little maintenance. They still offer several nice amenities, just not with the same expectations as the high-end Class A offerings. This type of real estate is more affordable and will attract renters of the general working class.
- Class C has been built within the last 30 years, usually with original work and systems. Generally, these properties are in need of some maintenance and repair as well as updating. They are however usually kept clean and in good enough condition for their tenants. They may offer 1 or 2 amenities but nothing extravagant or impressive. Here the renters are getting what they pay for. It’s less expensive housing but livable and comfortable.
It’s worth mentioning the financing side of these classes as well. For Class A and some Class B multifamily real estate properties you can usually get a lower interest rate, and more financing options are available. Longer fixed-rate terms and higher leverage make these classes good considerations for a strong investment opportunity. Agency lenders and real estate investment trusts (REITs) generally go after Class A assets, making them a viable option for investors.
Some of Class B and most of Class C properties usually have higher interest rates and fewer financing options. Your fixed rate may have balloon terms as well as less leverage. Financing for these classes is mostly from banks or more specific REITs and agencies. Know what you’re getting into and your best options for the highest return.
Multifamily property styles
Within these classes of multifamily real estate properties is the style of the buildings. How many floors, apartments and is offered will help to determine what kind of investment property you are interested in working with.
- Low-rise and garden-style are typically 3 or fewer floors with anywhere from 5-50 apartments. These usually do not have elevators and are considered a “walk-up”, though some may accommodate an elevator.
- Mid-rise range from 4 to 10 floors with some as high as 12, with elevator access. There can be 50 to 200 apartments in these buildings, with amenities offered.
- High-rise buildings range in size depending on zoning laws. They are more than 12 floors and up to 40 stories. There may be a mix of apartment sizes and layouts as well as up to 20 apartments per floor. Many amenities are offered at these buildings because the sheer size allows the space for extras, and the amenities draw in tenants.
Multifamily Versus Single-Family Properties
Multifamily Investment Properties
- When committing to an investment opportunity, you think about the time and effort that you need to put in. Investing in a multifamily property means just 1 property to manage, service and care for. If you have 10 apartments versus 10 single-family homes, your 10 apartments are in 1 place. You replace 1 roof, 1 A/C unit and hire 1 landscaper for 1 yard. Your drive to take care of business takes maybe 1 hour instead of 10. Even better, you can live in one of the apartments and potentially live rent-free while staying on top of maintenance.
- Cash flow — the reason you are in this business — has a higher likelihood with a multifamily residence. Multifamily means multiple checks coming in each month. Even with a vacancy or 2, you are earning money. If you have only a single-family home and it’s vacant, you’re getting nothing at all.
- Your portfolio will be more impressive. Growing your investment portfolio can be faster if dealing with a multifamily property. The number of units you obtain per transaction will increase much faster than with purchasing single-family properties. It’s also easier to sell them when the time comes because multifamily properties have many eager and willing investors ready to take over when you’re done.
- Multifamily investments may not be for everyone. Dealing with many tenants and the upkeep of a multifamily building can be stressful, expensive and hard and sometimes should be reserved for seasoned investors. A single-family investment may make it easier to get your feet wet and see how you like it, while not putting too much money into it right away. It’s expensive to invest in multifamily properties.
- More wear and tear is also a fact of life for multifamily investors. Sometimes in these buildings, you get lower-quality tenants who are less concerned with keeping up the apartment to your standards. So, you will be responsible for a lot of cleaning and maintenance when the property turns over, which is usually more often than with single-family rentals.
Single-Family Investment Properties
- It’s much less expensive to invest in a single-family home than multifamily real estate. With a lower loan amount, you can take on less risk and still add to your portfolio and see how you like having a rental property. Starting with 1 single-family rental is more manageable for someone new to real estate investing and still enables an investor to achieve a passive income.
- Your buyer pool is always ready. Single-family homes can be sold to buyers or investors, leaving many people willing and able to purchase if you choose to sell. The rental market for single-family homes is also great — many people would prefer to have a whole house and yard to themselves instead of risking loud, rowdy neighbors upstairs or downstairs like in a multifamily dwelling.
- In a single-family investment, you can save time and money with the right tenant. It’s easier to feel like a single-family home is their home, so they take better care of it and stay longer. A good long-standing tenant will keep giving you a reliable monthly income from your investment property for years to come.
- As mentioned before, if you have a vacancy in your single-family investment, you are losing money. You still have to pay the mortgage and taxes. You still have to maintain it for potential showings and renters. You are still putting money into it and getting nothing in return until you get a signed lease.
- If you have several single-family investment homes, maintenance can add up. If they all need new roofs, if they all need a new air conditioner, a furnace or anything else, it can get expensive. You are taking care of each property separately instead of just 1 of everything like in a multifamily property.
Multifamily Versus Commercial Properties
While multifamily real estate is considered commercial real estate because it’s an investment, there are still some notable differences between multifamily properties and other types of commercial properties. For example, office, retail and industrial may have different lease terms and owner responsibilities.
As far as lease terms for multifamily real estate, they generally are 1-year leases with the tenant paying for utilities and the owner paying for the mortgage and taxes. Retail and industrial leases can be for 5 or 10 years, giving a much longer and more dependable monthly income to the owner. More options for the lease terms are available for office, retail and industrial properties. These are more commonly known as gross leases or net leases. A gross lease is similar to a residential lease, which has a base rent and the landlord covers taxes and maintenance. In a net lease, the tenant is responsible for the rent as well as a portion of the taxes, insurance, maintenance and some operating expenses.
Multifamily Real Estate Market Outlook
This past year was admittedly tough with the pandemic. Investors lost income and tenants, and vacancies soared. Now, good things are on the horizon for multifamily properties in the next couple of years. Multifamily real estate is expected to make a full recovery in early 2022, thanks to many people reentering the workforce and leaving the comfort of their parents’ homes. The need to get back to normal, independent lives is abundant. We will see a growing demand for affordable housing as well as a decrease in vacancy in the coming years.
Ways to Invest in Multifamily Real Estate
- Purchase a building: Purchasing a building is the most direct form of investment. It’s your money, you have the most control — and the most risk. But it can also give you a great return on your investment and lead to a great portfolio.
- Apartment REITs: With less risk, investing in a REIT can be a great way to get into the multifamily real estate market. Here, you are among a pool of numerous investors and don’t need to worry about managing or buying the properties yourself. And yet, you receive a steady stream of investment income.
- Crowdfunding: Raising money through real estate crowdfunding is a seemingly easy enough way to get into investing. You fund your investment through an alternative finance — raising the money in small amounts from several different sources. You can see our picks of the top real estate crowdfunding platforms for multifamily real estate below.
Crowdstreet is an online real estate investment platform that lets investors choose from a wide range of real estate investment offerings to crowdfund. Crowdstreet investors are free to buy into managed funds, individual buildings or even build a bespoke investment portfolio that includes both kinds of deals.
CrowdStreet’s platform has a diverse range of property types, ranging from multifamily to office, industrial, self-storage and others.
- Accredited investors
- Long-term investors
- Investors looking to diversify from stocks
- User-friendly interface
- Diverse investment offerings
- Great investor resources
- Proven performance history
- Many offerings eligible for inclusion in self-directed IRA
- Accredited investors only
- Most offerings require a $25,000 minimum investment
RealCrowd is an online real estate investment platform geared towards commercial real estate investing. The platform’s mission is as simple as it is audacious: to create a platform that puts investors in the driver’s seat, while at the same time giving them access to the kind of commercial offerings that traditionally have prohibitively high buy-ins.
RealCrowd does this by leveraging the power of high technology and crowdfunding. Learn more about its real estate investment now.
- Accredited investors
- Long-term investors
- Holders of self-directed individual retirement accounts (IRAs)
- Equity offerings in commercial real estate
- Open to contributions from self-directed IRAs
- Carefully selected properties
- High potential returns
- Variety of offerings
- 5 figure buy-ins
EquityMultiple is a groundbreaking alternative investment platform that leverages high technology to make real estate investing easy to understand and accessible to all investors. The site specializes in offering both short- and long-term growth opportunities that allow hands-on investors to create and diversify their own investment portfolios.
- Accredited investors
- Hands-on investors
- Investors looking for quick returns
- Investors looking for low buy-in offerings
- Many investments with low buy-ins less than $10,000
- Numerous offerings with pay-outs in less than 12 months
- High-functioning website
- Incredible client support
- Only available to accredited investors
CityVest is a web-based real estate investment platform that was established to give small-to-medium-sized investors access to real estate investment opportunities that typically require 6-figure minimum investments. CityVest does this by pooling multiple investor contributions into 1 bundle large enough to satisfy the minimum investment requirements of the best institutional private equity real estate investment funds.
- Individual investors seeking access to institutional investments
- Experienced investors looking to diversify their portfolio
- Investors seeking investments with strong due diligence and screening
- Access to high-performance institutional funds
- High returns
- Intense vetting of investment opportunities
- Third-party due diligence on all funds
- No registration needed to review investment opportunities
- Quarterly distributions
- Only available to accredited investors
- Not a lot of investor control of fund options
-NOTICE- Benzinga has been alerted that Diversyfund has suspended its monthly dividend. This review will be updated once we investigate these changes to the platform’s dividend payments.
DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.
DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.
- Those looking for an alternative investment beyond stocks and bonds
- Individuals who aren’t sure they want to be landlords in the traditional sense
- Investors who aren’t accredited
- Only need to pony up $500 to get started
- Open to investors all over the world
- No expensive broker fees
- You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
- There’s only one real investment option, the DiversyFund Growth REIT
With all of this information on investing in multifamily real estate, you should be well on your way to planning how you’re going to invest and what type of property you’d like to invest in. Go increase that portfolio and start earning some impressive passive income now.
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.