What Is the Right REI for You?
PART II: MULTIFAMILY
by W.J. Mencarow
Many real estate investors prefer multifamily properties over houses. The cashflow is better per square foot, and it is more depend- able. If a tenant moves out of your rental house, your cashflow stops. Depending upon how much work the house needs, the demand for rentals, and the quality of applicants, it could take a month or two, some- times more, to find a tenant you are willing to trust with your house. If you own a multifamily property and a tenant moves out, you still have cashflow from other tenants. Plus, multifamily units are smaller than houses, so there is less work to be done between tenants, thus a unit can be back on the market quickly. And multifamily rents are lower
than houses, so you have more ap- plicants to choose from and can rent them faster. Another advantage of multifamily is that you can live in one of the units rent-free as your tenants pay the mortgage. You can also be your own manager, saving you a lot of money. Qualifying for a loan on a multi- family building is easier because lenders look at cash flow. That is not the case with rental houses. Another advantage is that expenses on multi- families are lower per square foot than houses due to economies of scale. For example, replacing a roof on a 15-unit building, while expen- sive, is less than replacing roofs on 15 houses. Before you buy a multifamily
building, remember that, like any investment, it has disadvantages. One is that it costs a lot more than a house. While a house down payment might be a few thousand dollars, it will be more for a plex (duplex, tri- plex, fourplex) and many times that for an apartment building. And you will need deep pockets to maintain an apartment building. You save be - cause of economies of scale, but the scale is big; you could find yourself paying for the repairs/replacement of numerous air conditioners every year. And don’t forget yard mainte- nance. Tenants in houses take care of their yards (mine do); not so in multifamily units. Unless the utilities are separately metered (usually the case in apartment buildings, not
76 | think realty magazine :: september 2020
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