If you are thinking of investing in real estate, you probably have heard about multifamily properties versus single-family properties. Both of them have advantages and can become a generator of a steady income. However, multifamily investing presents better opportunities if you want to grow in the business in a faster and more steady way.
If you have already made a single- or multifamily investment, or just getting your start, here are some benefits of investing in multifamily properties and why Boston is a great place to start.
What is a multifamily property?
Before you start, it's good to have a clear concept of what multifamily properties are. The name can be a little misleading. It doesn't mean that it's a property where several families or family members live together; multifamily properties are buildings with more than one separate rentable space. These properties have more than one housing unit, with each unit having a kitchen, bathroom, and a combination of bedrooms and/or living space.
Usually, these properties are apartment complexes, duplexes, condos, townhomes, etc. Multifamily properties are also different from commercial real estate (CRE). CRE properties can also have multiple units but are used as a workspace or for any business-related purpose, rather than as a living space. (office, retail, industrial, hospitality, other)
Why invest in a multifamily property?
A higher-income source
One of the main benefits of this kind of property is a positive cash flow. You only need some of the rent to pay off expenses while the rest represents steady multiple monthly incomes. Besides, the paperwork to receive the rent from your tenants is much more straightforward than in commercial real estate, whether month-to-month or with a long-term lease agreement.
Less risk of vacancy
Multifamily properties are often seen as one of the safest property types to invest in. There are always people looking for a place to live, and rents are typically predictable in strong markets like Boston. This is why they make a safer bet than renting to retail and small businesses, which are the first to be affected during recessions.
Multifamily is simply safer because of the number of tenants. If one unit has a vacancy, you still have others producing income, which is not the case with single-family properties.
Easier to secure its financing
Single-family properties are often cheaper to finance and that's the reason why a lot of people choose them. However, it can be easier to get investment loans for multifamily properties, given they don't represent much of a risk to banks because of the mentioned predictability of their positive cash flow. The multiple units work as a safety net for loaners. Besides, the lending process for multifamily properties is much more straightforward compared with commercial real estate, and it’s easier to manage than having multiple single units. As an added bonus, multifamily properties in Boston are often easier to insure.
As an investor, you usually have to acquire a mortgage to finance a real estate property. This means you can get a mortgage interest deduction, which is a tax incentive for homeowners, or a Property Tax Deduction. As long as you stay within the limits established by the IRS, you can get a lot deducted from your taxes.
You also can deduct from your taxes all maintenance costs, like operation, repair, property management, and marketing costs. With time, you can also use the real estate depreciation and cost-segregation tax benefits as your building's infrastructure and furniture age, even if the property's market value is on the rise.
A faster way of growing your portfolio
Multifamily properties are a faster and easier way to build your real estate portfolio than single-family units. Imagine going through the process to acquire 30 different houses, getting loans for each of them, dealing with different sellers, and traveling to every address to inspect them. Acquiring a building with 30 apartments is a much easier and straightforward option, and you'd have only one mortgage payment with a multifamily building. Scaling your real estate holdings is also easier. Once you get your expenses and montage covered, the high cash flow makes it easier to start investing in other properties.
More time for yourself
Multifamily investing gives you the resources, and the justification, to hire a property manager, meaning a person or company that will run and supervise any real estate unit. They will oversee the day-to-day activities and needs of the property, including dealing with the tenants, collecting rent, and taking care of the property, which gives you a lot more time to tend to other important tasks.
(Another piece of good news! What you pay to have a property manager can also be deducted from your taxes against the income generated by the property.)
Why is Boston the place to start investing?
Boston is the biggest and most populated city in Massachusetts (recently named the #1 job market in the United States) and has one of the highest concentrated workforces in the country, so the real estate market in the area is on the rise even with the pandemic. The abundant job opportunities, world-class hospitals, high-quality educational institutions, and growing city life attract constant new traffic and high demand for rentals.
All the incoming people are competing for rental properties, driving up rental prices. Just in the last decade, Boston property values have increased up to 80%, more than the rest of the country, and the increasing real estate prices don’t seem to be going down anytime soon, which is good for investors.
Boston also allows investors to diversify their real estate portfolios. You can buy an apartment building in a really busy area or a duplex in the outskirts of the city. Investors can redevelop obsolete properties or buy in less packed areas for better prices while still enjoying a good revenue. The possibilities vary widely and offer the real estate investor a wide array of opportunities
For all of these reasons, Boston is one of the most sought-after real estate markets and with that comes a lot of benefits for multifamily investing. Even if it needs a considerable amount of effort and money to get started, Boston has the physical and economic infrastructure to make multifamily investment a competitive and profitable market, with one of the highest appreciation rates in the country.
In Summary, a multifamily investment in Boston may require more capital and may come with its own set of complications but is a relatively safe and lucrative bet that will likely pay off quickly. If done correctly, you will have a positive cash flow (to manage the property and have your own passive income each month), you won’t risk vacancy because of the high demand for rentals in the city, and you will be investing in one of the most competitive real estate markets in the country.