Multi-Family

by Steve Van Derodar

| Photo from architechturaldesigns.com via Steve Van Derodar

“If presented with the opportunity, multi-family real estate would likely be a top contender for many investors, given its strong potential for consistent cash flow and long-term value. It’s an investment that’s hard to overlook, and at the very least, one that most would be open to seriously considering.”

Widely regarded as one of the most appealing types of real estate investments, a multi-family property offers a unique blend of stability, income potential, and scalability that is hard to match. Unlike single-family homes, which rely on a single tenant for income, multi-family properties generate cash flow from multiple units, significantly reducing the financial risk associated with vacancies. This ability to spread risk across multiple tenants makes them a more resilient investment, especially in fluctuating markets.

A multi-family residential property contains multiple separate housing units within a single building or complex. These units are designed to house more than one family, with each unit typically having its own entrance, kitchen, bathroom, and living spaces. Multi-family properties can range from small buildings with just two or three units to large apartment complexes with dozens or even hundreds of units.

Numerous multi-family property investment opportunities are available in New York City. You see a duplex, triplex, and quadruplex easily, and the appeal of various neighborhoods can change based on several variables, including location, development patterns, rental demand, and long-term growth potential. Strong rental markets, appreciation possibilities, and general housing demand make some locations especially appealing for multi-family investment. Even though large-scale multi-family investments in Manhattan can be highly costly, the city presents alluring options, especially in regions with strong rental demand and rapid development. In some parts of Brooklyn, gentrification has accelerated due to a high demand for rental units, population growth, and rising property values. Queens has excellent opportunities for multi-family enterprises because of its strong rental demand and lower real estate costs than Manhattan and Brooklyn. More and more renters looking for greater space and value are choosing this borough.

Because they can produce several sources of rental income from a single property, multi-family properties are popular among real estate investors. They also provide economies of scale, meaning running expenses (including utilities, management, and maintenance) are frequently more economical than in single-family homes. As it happens, multi-family buildings can generate steady rental income from several tenants, contributing to a steady cash flow stream. There is less chance of a complete loss of revenue because the other occupied units can continue to generate cash even if one becomes unoccupied.

As an additional factor, investors can take advantage of economies of scale when owning several apartments in a single building or complex. For instance, the cost per unit is frequently lower when considering maintenance, property management fees, and repairs than when owning many single-family houses. For example, it is more efficient to maintain a single roof rather than several separate homes. Multi-family homes typically increase in value over time, mainly if they are situated in areas with solid demand or growth. Additionally, by improving the property, raising the rents, or better managing the building, investors can raise the property’s value and perhaps increase earnings when they sell or refinance the property.

The total vacancy risk is lower than a single-family home with multiple tenants. If one tenant moves out, the investor still receives income from the other units. This diversification helps smooth out cash flow fluctuations, especially in stable demand for rental units.

Multi-family properties, especially those with 2-4 units, are often easier to finance than commercial properties because they are considered residential for lending purposes. In addition, lenders typically view multi-family properties as less risky than single-family homes because they have multiple income streams. This can make it easier to secure financing with favorable terms (like lower interest rates or smaller down payments).

“Investors can scale up more quickly with multi-family properties. Instead of acquiring several single-family homes (which requires individual purchase processes, maintenance management, etc.), an investor can acquire a property with several units in one transaction.”

Interestingly, real estate investors can take advantage of various tax deductions and incentives, such as: Depreciation: Multi-family properties can be depreciated over time, reducing taxable income, Interest deductions: Mortgage interest payments on multi-family properties are deductible, Property management expenses, repairs, and improvements can also be deductible. These tax benefits can help improve the overall return on investment (ROI).

Multi-family properties can be sold or refinanced as a single asset, making it easier to exit an investment than selling multiple single-family homes. They can also be converted into different uses (e.g., turning apartments into condominiums), offering more flexibility in how the property is utilized for profit.

Investors can scale up more quickly with multi-family properties. Instead of acquiring several single-family homes (which requires individual purchase processes, maintenance management, etc.), an investor can acquire a property with several units in one transaction. This allows for faster growth in the real estate portfolio. The demand for rental housing has been growing, especially in urban and suburban areas. Many prefer renting over buying due to affordability, lifestyle choices, or job mobility. This creates a steady market for multi-family units.

Investors can influence the value of a multi-family property more directly than with other asset types. By increasing rents, improving the property, or better managing the tenants, investors can significantly increase their property’s income-producing potential, raising its market value.

For illustration, let’s say you spend $1,500,000 on a four-unit structure, each of which rents for $1,900 monthly. Your monthly rental revenue comes to a total of 7,600. You still make money from the other three units even if one tenant vacates or one needs repairs. You may eventually grow rental revenue and property value by raising rents, making improvements to the property, or implementing cost-effective management adjustments. I now remember a friend who is a medical doctor and a realtor showing me his rental property in Rego Park, which has three units in a complex. He had constant tenants for years.

In contrast, a single-family home may only generate $2,500 per month in rent, and if it becomes vacant, there is no income until a new tenant is found. The overall risk and management effort involved in a single-family investment might be higher than for a multi-family.

How best to describe gains in multi-family than hearing from one investor say, ‘Owning a quadruplex has been one of my best financial decisions. With four units generating rental income, it provides a steady cash flow and minimizes vacancy risks. The shared structure lowers maintenance costs, and its value continues to appreciate due to the high demand for multifamily housing. I highly recommend quadruplex investments to anyone looking to grow their real estate portfolio with a balance of income stability and potential for capital growth.”

Overall, multi-family real estate can be an attractive investment option, offering stability and multiple income streams. It allows investors to balance risk and reward and, with the proper management and strategic improvements, can be a highly profitable long-term asset. By seizing this opportunity, you’re putting yourself in a position to capitalize on a resilient, income-producing asset with enormous growth potential.

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ABOUT THE AUTHOR: In New York City, Stevenson is affiliated with Elegran Forbes Global Properties as a Real Estate Advisor and licensed Real Estate Salesperson. Forbes Global Properties is a global network of elite real estate professionals, including brokers, developers, and agents, who specialize in luxury properties. Through Forbes Global Properties, members can connect with affluent buyers and sellers across the globe and showcase their high-end properties on a global stage. Stevenson is a Real Estate Board of New York (REBNY) member and the National Association of Realtors (NAR). Email him at svderodar@elegran.com.

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