The Ultimate Guide to Multifamily Commercial Real Estate Investing
Multifamily commercial real estate is a smart choice to grow your investment portfolio. It offers a great entry into investment properties. But as with all investments, weighing the risks and rewards is important.
In this blog, our expert commercial real estate advisors in Atlanta have covered all important aspects so you can make an informed decision.
What is Multifamily Commercial Real Estate?
A multifamily property is a building where multiple families live. Any property with more than 5 units, each having its kitchen and bathroom, is considered multifamily commercial real estate.
This is different from single-family properties, which keeps just one family. The most common multifamily investment properties are apartment buildings or complexes with many units. They may range from a two-family duplex to a high-rise apartment building with hundreds of units.
What Are the Benefits of Investing in Multifamily CRE?
Investing in multifamily commercial real estate offers many benefits. Some of them are mentioned below.
1. Simplicity of Process
Investing in multifamily real estate is easier than other commercial real estate types. You can buy multiple units with just one loan, instead of getting a separate loan for each single-family property. Plus, insurance companies familiar with multifamily properties can create a personalized policy for you.
2. Passive Income
Investing in commercial real estate in strong markets is a great way to earn passive income. Managing your multifamily property will be easier if you hire a professional commercial real estate advisor like Terra Alma in Atlanta. We’ll ensure you are consistently making profits with our expert guidance.
3. Tax Relief
Investing in multifamily commercial real estate comes with great tax relief. You can deduct utilities, property management fees, maintenance and repair expenses, insurance premiums, and marketing costs.
Over time, you can also benefit from commercial real estate depreciation and cost-segregation tax advantages as your building and its appliances age, even if the property's market value is increasing.
4. Growth Potential
If you want to grow your investment portfolio quickly, investing in multifamily commercial real estate is faster than buying single-family one at a time. It allows you to move into other commercial real estate types and create more cash flow opportunities.
5. Easy to Finance
The fair market value of multifamily property is usually much higher than single-family properties in the same area. However, it's easier to get financing for multifamily properties.
Banks see them as less risky because the cash flow from an apartment building is more predictable than a single-family rental. So, you might get lower interest rates.
For example, if you have 5 units and one tenant moves out, your rental income only drops by 20% until you find a new tenant. In a single-family rental, you would have no income during a vacancy, which is riskier for lenders.
6. Consistent Cash Flow
One of the biggest benefits of investing in multifamily commercial real estate is the consistent monthly cash flow from rental income. Unlike single-family properties with one tenant or group of tenants, multifamily properties have multiple tenants paying rent. If one unit is vacant, you'll still have income.
Before investing, you should consider CRE advisory in Atlanta and beyond.
We’ll research and create an investment strategy for you. Check the fair market value of your units and ensure your rental income will cover your net operating costs (NOI), which include mortgage payments, insurance, taxes, property management, and maintenance.
If your property is in a strong rental market and can fill vacancies quickly, you can expect a consistent cash flow.
What are The Risks Involved in Multifamily Commercial Real Estate?
While there are many benefits to investing in multifamily properties, it's not something everyone can do.
1. High Investment Upfront
Multifamily rental properties can be profitable but they require a significant upfront investment. Even smaller apartment buildings (five or more units) can cost millions.
While banks may offer favorable interest rates to qualified investors, you'll still need to make a down payment of around 20% (or more, depending on the market and building size). Because of this, investing in multifamily commercial real estate is financially out of reach for many people.
2. Competition
Because multifamily properties offer many benefits to investors, there's often strong interest from experienced investors in competitive rental markets. Prices can rise significantly when developers and investors compete for the same property. Some investors even buy properties outright with cash, making it challenging for newcomers to enter the market.
3. Managing Multiple Things
Even if you can afford the down payment and successfully compete to buy a multifamily property (both significant achievements), your job is far from done. Managing multiple units is a big responsibility that demands time, attention, and upkeep.
If you have to manage more than 5 units and are short on time, you can consider Terra Alma for commercial real estate advisory in Atlanta and find a better solution to your problem.
In Conclusion
Investing in multifamily commercial real estate can bring steady rental income and tax benefits, but it requires a high upfront investment and careful management.
Contact Terra Alma for professional commercial real estate advisory to help navigate challenges and maximize profits in competitive markets like Atlanta.