Real Talk!

A common perception about real estate is that it is sensitive to economic downturns, and that’s a reasonable consideration. Multifamily real estate is an investment category with less risk. While this is hardly a new concept, participation in this market sector has been increasing significantly.

Multi family homes are houses which are designed for more than one family. They are a freestanding building composed of two to four separate living units, each unit having its own kitchen, bathroom and bedrooms. There are also opportunities with commercial units consisting of one or more stores with apartments above them. These types of real estate have had a rare combination of high returns with lower risk.

A multi unit home is historically one of the first properties acquired by a beginning real estate investor. The cash needed for such a purchase is often lower than on a single family property and the potential resale market is quite large, including other beginning investors. There is an opportunity for the first time buyer to live in one of the units and have the tenants pay the mortgage.

Chaos in securities the past few years has brought a number of investors to the multi-unit market. Since the economic climate has resulted in tightened lending practices,some people are now finding it difficult to qualify for mortgage financing. Others have been forced to sell their homes at a loss, or worse, to face foreclosure. This creates a market of people actively searching for nice rental property.

As the definition of “family” is changing, many buyers are looking for multi-family houses to house non-traditional or multi-generational families. Many families are looking for larger homes to include elderly loved ones or adult children who remain at home. It is likely that the multi family segment is going to outperform other real estate sectors for several years.

A well-chosen multifamily property can be a long-term positive cash-flow investment. There will always be young couples and older retiring folks looking for good rentals. Owning a multiplex can very often provide a substantial positive cash flow for many years to come.

There are financing programs in existence that can help you purchase an owner-occupied multi-family house. Qualification guidelines for this type of financing are generally less stringent than for other types of investment real estate and the rent from the unit or units that you don't occupy can usually be considered part of your qualifying income.

The maintenance demands of a multifamily property are not very different from those of a single-family house, and both owners and owner-occupants often find that they can save substantially and build equity by doing the primary maintenance work themselves. This sort of property is often seen as a "hands-on" investment; as it calls for routine maintenance, such as mowing grass, unplugging sinks and toilets.

The purchase of a multi-family unit should be considered a standard long-term buy and hold rental property (that means, not a flip, not a lease to own, not any sort of real estate strategy). Seasoned investors build their investments by carefully and conservatively analyzing a property’s cash flow and your Realtor will help you to do the same, prior to purchasing.

The good news is that cash flow on a multi-family is always greater than that of a single family because you have rent coming in. The multi-unit property has an economy of scale (i.e. six families living in six separate units will have six roofs to repair while in a multi-plex there is generally only one roof). & there is less competition when purchasing in the multi-family sector... because not everyone has caught on!

Cash cows are harder to find but sometimes you can take over a property that has existing tenants and a positive cash flow. Here, you cannot go wrong- as long as the building is not about to topple over. The distinguishing benefit to sound real estate investments is their ability to provide income no matter what the economy throws at you.

Owners and investors should annually be (a) performing a five year forecast of their property holdings and (b) should be reviewing their mortgage costs for possible refinancing. Why? 1) generally people have the majority of their wealth in their personal residence, and 2) real estate is excellent mechanism for wealth accumulation.

Many investors never buy anything bigger than a property with four family units and they are happy with the returns they get from small properties- however, it is no secret that wealthy investors buy multi-family and commercial properties and that is how they got wealthy in the first place.

Multi-Family Housing just might be the best investment you can make in today’s economy.Take advantage of low interest rate financing to catch the next wave of real estate investment profits in the multi family sector and there’s still time to beat the HST!