The Pros and Cons of Investing in Large Multi-Family Properties

Real estate offers an array of investment options, including the opportunity to manage large multi-family properties. Large multi-unit family properties, like apartment complexes, are unique because they’re considered both residential and commercial.

Investing in a large housing development comes with many challenges, but it also has the potential for big rewards. You should consider a few things when deciding whether you’re ready to invest in larger multi-family properties.

Pro: Bigger risks often mean bigger payouts

Investing in larger properties can be extremely rewarding. More significant risks often yield bigger rewards. Larger properties can make more money quickly if managed properly since more units equal more income streams.

Con: Larger properties mean larger risks

The most crucial factor to consider is the amount of risk you’re willing to take. Larger multi-family properties are more expensive and therefore require a more considerable investment. They also come with a higher level of risk, as any problems that arise will be magnified due to the number of tenants involved.

Pro: Risk mitigation potential

While there are higher risks with a larger multi-family property, the fact that the properties house many tenants also help provide some cushion against financial loss. If you maintain the property and reduce the amount of turnover and the time between tenants, you can reduce your risk of loss. Single-family properties provide less mitigation because if your only tenants leave, you have no income until you replace them.

Con: Time and effort

Something to remember is that large multi-family properties take a lot of time and effort to manage. You’ll need to have a good understanding of the real estate market and be prepared to put in long hours researching potential investments.

Further, if you want to be hands-on, you’ll need to ensure tenant satisfaction by listening to common complaints and finding ways to address tenant pain points. You can hire a property management company to deal with most of the day-to-day operations, but you’ll still want to stay informed.

Pro: More stable long-term value

Subjective factors like curb appeal and bonus rooms often influence single-family homes. While amenities and location certainly affect what a multi-unit family could reasonably charge, the emotional factors have less influence.

This is because there are often more units in a complex, and each unit generally contains similar features. Additionally, people are increasingly looking for apartments in desirable locations as the barriers to entry for homeownership continue to rise.

Con: More expensive

The cost of investing in sizeable multi-unit family properties can be prohibitive. In addition to a higher up-front cost, maintenance is also more expensive. New investors may want to consider less costly alternatives when first starting out.

Pro: Fewer Loans and insurance policies

It’s much simpler to purchase one large property with 100 units versus 100 single-family homes or even 50 duplexes. You can take out a single loan and make as much (or more) with fewer documents and payments. Since you’re taking out a single loan, you’ll also be able to avoid additional loan origination fees and closing costs.

You’ll also likely need to purchase a single insurance policy to cover your multi-until property versus paying for individual coverage for multiple single-family properties.

Con: Stricter regulations

If you purchase a large multi-unit family property, you’ll face additional regulations that landlords with single-family properties may not need to worry about. Since large multi-family properties (like apartment complexes) are identified as commercial, owners must meet strict regulations to meet local zoning and code laws.

These are just a few of the pros and cons to take into consideration when thinking about investing in large multi-family properties. Real estate investment is a big decision with a lot to learn, but it can be extremely rewarding if you’re willing to put in the time and effort.

Have questions? Reach out to us to find out how we can help you take the next step towards buying or selling your large multi-family commercial property.

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