In the world of real estate investment, there are few more popular opportunities for long term wealth than multi-family properties. San Diego is no different for property investors. The city boasts an impressive 52% of its occupied households being renter occupied. And multi-family is the predominant property type for those renters.
With so much opportunity on the table for property investors in multi-family rentals, there also exists plenty of competition in the market. It also takes more financially to invest in multi-family compared to single family rental properties. The level of commitment it takes can scare some investors off and keep them playing it safe with smaller cost investments.
However, the long-term gains you can make by investing in a multi-family property far outweighs the risk. Together, we’ll look at the benefits of pulling the trigger on multi-family and how it can exponentially increase your wealth as an investor.
What Are Multi-Family Properties?
When people think multi-family, they most often think apartment complexes. Multi-family is a wide umbrella that can encompass many different property types. These properties are simply defined by having more than one family live on the premises. If the property has more than one adjacent housing unit and/or shares physical aspects such as utilities, walls, or amenities, then it’s a multi-family property!
This means the multi-family classification covers not just apartment complexes but also attached townhomes, condos, and manufactured housing. Whatever the type, it always means you’re going to be dealing with more than one tenant per property. Sometimes this means dozens or hundreds of tenants on one property. That’s why many multi-family landlords rely on a property manager to deal with their properties.
Advantages of Investing in Multi-Family Properties
Taking the plunge on a multi-family real estate investment comes with a list of advantages that expand your income and security. While it might take more time and money to acquire, the results are worth it. Here’s just a few of the common benefits:
Higher income potential
While it might seem obvious, the fact remains that you’re going to make much more rental income on a multi-family property versus single family homes. Even if you have multiple single-family properties, the occupancy level of a good sized multi-family property is going to generate much more income on a monthly basis for you.
Turnover Risk Mitigation
If you are renting out a single-family property and their lease ends or they move out unexpectedly, that fully cuts you off from your rental income on that property. With a multi-family property, you have a multitude of tenants paying rent to you on a monthly basis. While filling every unit is important, you’re not cut off from income if some are empty temporarily.
High Tenant Demand
As mentioned at the start of this blog, demand on multi-family properties amongst renters is high. How high? In 2022, multi-family rentals grew to 47.1% of the rental market, by far the biggest share of any property type. So not only do you have more reliable income, you also have an easier time finding tenants with these properties.
Resiliency of Investment
In times of economic hardship, multi-family properties are considered to be one of the more resilient investment types. Because they typically have shorter lease-terms compared to other rental types, if a recession hits or inflation occurs you’re able to adapt to market conditions quicker. Recession’s in particular also tend to flood the market with more renters, which makes the property more attractive.
Additional Value
Multi-family properties are going to have much more physical space than others. More physical space means more ways for you to add value for your property. This means more rent and more overall property value. Some popular ways to do this include adding pools or gyms to the property. Additional services like laundry areas or trash valet are also great value-adds.
Financial Considerations
Managing the financial side of a multi-family property comes with its own special set of considerations. Thankfully, these often are in favor of the landlord.
- Tax Advantages: In California, owning a rental property is going to give you much more tax benefits than a normal residential property will. Operating costs, repair costs, and property depreciation can all be written off.
- Better Financing: Government-backed agencies like Fannie Mae are designed to improve the stability of the U.S. housing market. They also lend on multi-family properties. This means you have more financing options and will typically have lower interest rates than a normal home would.
- Potential for Equity Growth: Equity is the difference between what your property is worth and what you owe on it. With lower interest rates, you’ll be able to grow the equity of your investment much faster. This can also give you more freedom to grow your portfolio and your wealth.
Risks and Challenges
As with any investment, there are risks and challenges associated specifically with running a multi-family property. Unsurprisingly, many of these challenges are going to boil down to scale. More tenants and a bigger property size is going to equate to more time and work. This is the primary burden of multi-family.
Maintenance issues can quickly get unwieldy with so many units when only one person or even a small team is managing them. Having a network of contractors and the manpower to address all of the issues is key to avoiding crises.
While tenant turnover is less of a blow with so many units, it also means you’ll be dealing with turnover much more often. To maximize your monthly income, you have to stay on top of it. It can quickly feel like you’re constantly addressing turnover when on your own.
Successful Property Management in Multi-Family Properties
Multi-family properties are one of the most lucrative opportunities in San Diego real estate investment. The long term growth you can see with these properties and the month-to-month income security can’t be matched by a single-family property.
You do however need to have a team to tackle the marketing, maintenance, and tenant needs of the property. A full-service property management company is a necessity to run these properties efficiently.
Income Property Advisors Inc. is the right choice for your multi-family property in San Diego. We have over two decades of experience in this market and a proven track record of success when dealing with larger properties. We take all the difficult parts of property management off your plate so you can focus on the growth of your investment.
Let’s grow together with your property. Contact our team today to get started.