Investing in small multifamily real estate is one of the best investment strategies for building lucrative and consistent cash flow on a monthly basis. That alone makes small multifamily real estate a smart investment, but this merely scratches the surface. In this article, I will outline just five of the MANY reasons to invest in small multifamily real estate – especially in the Santa Barbara market.
1. Small multifamily real estate creates more cash flow
Let’s address the first and most obvious reason to invest in small multifamily properties instead of single-family homes. From a business perspective, a multifamily property is a single asset, regardless of how many units the property contains (up to 4 units for residential real estate). With multifamily real estate such as a duplex, triplex, or fourplex, your ONE investment yields MULTIPLE streams of income. A duplex yields two streams of income, a triplex yields three streams of income, and a fourplex yields four streams of income. In contrast, a single-family home will only render singular cash flow. Simply stated, multifamily properties offer greater leverage than a single home.
2. Small multifamily investments are easier to manage
Every business requires management, and real estate properties are no different. However, with multifamily properties, you’ll benefit from economies of scale that reduce your management load per unit. Would you rather own three units spread all across California, or one single triplex in Santa Barbara? In the former case, you’ll potentially need three property managers, three gardeners… three of everything. Three drives on the 101 alone can make you lose it. Compare this with a single triplex in Santa Barbara that could easily be managed yourself or with one manager.
3. Small multifamily investments are easier to finance
At this point, you may be asking: If it’s all about more units under one roof, why not buy something larger than a fourplex? Here’s the thing – a property that contains five or more units is treated as a commercial property, which presents very different rules and regulations for financing. Any property with four units or less is considered “residential” real estate. As a residential property, buyers gain access to simpler financing options – even an FHA loan if you will be living in one of the units yourself. Many first-time investors with limited budget will buy a duplex, living in one of the units while renting the other out.
4. Small multifamily properties retain value
As Grant Cardone famously says, if you want to be rich, buy multifamily real estate. FYI, Grant Cardone owns over 4,000 apartments, so you can be sure he practices what he preaches. Aside from the passive income, Grant teaches that multifamily properties often retain their value better than single homes. The more income a property generates, the higher the value. Because multifamily properties contain more units, which means earning multiple streams of income, these types of investments are generally valued higher than single-family homes, which are dependent on comparable sales as rentals.
5. Scale your real estate portfolio faster
Multifamily real estate is ideal for property investors who wish to build a relatively large portfolio of rental units. Acquiring a fourplex is a lot easier and much more time efficient than purchasing four different single-family homes. As separate assets, you’d need to negotiate with four sellers, and conduct four (or more) inspections on four houses that are each located at a different address. Who has this kind of time? Why not ditch the headache and just buy a fourplex?
The vast majority of Americans intend on buying a home, so why not maximize your investment? As we’ve seen in this article, small multifamily properties (four units or less) present a distinct opportunity over single-family homes. From cash flow, to management, to financing, these unique assets pack a serious punch. If you are ready to see if real estate investing is right for you, please reach out anytime. I’d be happy to meet with you to outline an investment strategy to help you build your money machine.