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From individuals to large corporations and pension funds, multifamily investments are growing increasingly more popular among investors and are typically included as part of any well-diversified portfolio. Why? While there are many reasons to invest in this commercial real estate sector, which we recently wrote about in this article, the main draw to multifamily investments is (i) easy financing, (ii) quick and stable portfolio growth, and (iii) a wide-variety of property sizes, types and prices that allow for a wide-range of investors to enter the ownership market.
So should you invest? That depends on your needs/wants. While no commercial investment is without risk and it’s fair share of issues, multifamily does have its positive attributes, as well as a couple negative ones that you should be aware of before investing. To help you make an informed decision to break into the multifamily game, or not, below we outline the types of properties available for investment and the pros and cons of purchasing.
For a look at 2017’s projected market performance, and a review of 2016, see this recent Multifamily Outlook Report from Freddie Mac.
When one hears “multifamily” they typically think of apartment communities, but there is more just that in this commercial real estate investment sector. On the highest level, multifamily properties are defined as any building that contains more than one housing unit. There must be at least two adjacent housing units, horizontally or vertically, for the property to be considered multifamily.
Below we list the various types of multifamily properties available for investment.
- High-rise: A multifamily property with at least nine floors and one elevator.
- Mid-rise: A multifamily property with multiple stories and an elevator. Typically located in urban areas.
- Duplex: A multifamily property consisting of a one-story building with two separate housing units, typically side-by-side.
- Townhouse: A two, three or four-story multifamily property typically attached side-by-side to matching or similar housing units.
- Garden-style: A one, two, or three-story multifamily property, with or without elevators, built in a garden-like setting. Typically located in suburban, rural, or urban areas.
- Walk-up: As the name implies, this is a four to six-story multifamily property that does not have an elevator.
- Manufactured housing community: A multifamily community where the operator leases ground sites to owners of manufactured homes.
- Special-purpose housing: A multifamily property, of any style, that targets a specific population segment.
- Student housing: A multifamily property where at least 50% of the housing units are intended for students attending a nearby school or university.
- Seniors housing: A multifamily property strictly for the housing and use of senior citizens.
- Affordable housing: A multifamily property that serves low income or special needs renters. It is considered “affordable” due to rent and income restrictions.
- Cash Flow: Probably the biggest draw to multifamily investments, this asset class requires no transitional period when it comes to seeing profits. Unlike other CRE investments that see returns over the long-term, multifamily assets generate cash flow for their owners from the day of purchase. Realized through monthly rent payments, this cash flow exists whether you have tenants who pay late or have a property that sits at only 30% vacancy.
- One Loan: An unpleasant part of investing in commercial real estate is securing financing. While you still have to go through the process with multifamily investments, it’s easier to obtain…and only has to be done once for multiple properties. Loans that are difficult to obtain are difficult because risk exists, and from a bank perspective multifamily properties are not risky due to the cash flow they generate each month. (See above).
- Immediate Portfolio: Multifamily properties offer investors the opportunity to build a large portfolio quickly. With one purchase an investor can acquire anywhere from 2 to 150 units.
- Management: Multifamily investments are at their very design run like a business, with investors always hiring 3rd party management to handle and run daily operations. Because of this multifamily owners typically factor in the cost of management into the cost of owning the property.
- Price: While this con is true, it’s true when comparing investing in single-family over multifamily. As stated above there are several different types of multifamily properties available for purchase, and they range from low cost duplexes to mega expensive apartment communities.
- Transitional Tenants: As opposed to tenants in other commercial real estate sectors (office, industrial, etc.) who sign leases for anywhere from 5 to 20 years, tenants in multifamily properties are considered transitional in that they typically sign leases for only one year at a time. Continually attracting new tenants can add up to a significant expense.
- Increased Management: Tenants in multifamily units have a reputation for being more needy than other CRE sectors. From frequent maintenance issues to late rent payments, there will always be increased tenant issues with this investment type. The good news though is that since owners typically always hire 3rd party management, they will never have to get involved in the drama.
Whether you are starting with your first duplex or are seeking an entire apartment community, there are many available multifamily investments in Baton Rouge, and surrounding areas. If you need help locating your next investment, contact one of our multifamily experts who can help find and procure the opportunities that match your financial goals. Our goal is always to maximize our clients’ investment returns and with countless multifamily transactions under our belts we’ve set many investors up for success. Contact us at 225.367.1515 to see how we can help increase your investment bottom-line.
About Us – The team at SVN | Graham, Langlois & Legendre has over 99-years of combined experience helping clients across the Baton Rouge market get the most value out of their CRE investment. Contact one of our dedicated CRE professionals today with any questions you may have and start seeing the returns in a market that will make sure to give today, tomorrow and for the extended future. To reach us, you can call us at 225.367.1515 or you can send us a message on our website. You can also follow us on Twitter at @svngll or on Facebook.