JLM Blog | Earn Passive Income with a Multifamily Rental PropertyReal Estate News, Updates, and Tips
San Diego Real Estate Agency
Article published on January 24, 2022
Any kind of income is more than welcome, especially in today’s economy. Especially if it is a passive income and we do not have to make great efforts to maintain it. Buying a home is often thought of as an investment that is too risky and unprofitable. However, nothing could be further from the truth.
Perhaps you’ve heard of house hacking. It is a way in which you earn money passively thanks to the acquisition and rental of a multifamily property. In this article, we explain the advantages and the process involved.
What is multifamily property?
A multifamily property is any residential building in which more than one family lives. It makes no difference how many units it is divided into. An apartment building or complex with several units is the most prevalent type of multifamily investment property. They might be as small as a two-family duplex to as large as a high-rise apartment complex with hundreds of apartments.
Types of multifamily property:
* Duplex, triplex, quadplex: each unit has its own entrance off the foyer.
* Townhouses: the exterior walls of townhouses are shared. Each has its own private entrance.
* Semi-detached homes: they contain only two units.
These properties are quite attractive for those who wish to live in the area. The neighborhood communities and buildings give a cozy feeling for those looking to rent a place to live.
That’s why investing in multifamily property and then renting part of it -or all of it- is a great deal. This process is known as house hacking. Although it may seem risky, everyone needs a place to live. As we at Real Estate Agency San Diego know, the real estate is ageless.
What is house hacking?
House Hacking consists of renting a part of your property to obtain an economic income. You can rent a room, an entire apartment, or a space adjacent to your property. House Hacking takes place in your own home. Depending on the distribution of your property, it can be more or less optimal for this practice.
House hacking is becoming popular in many parts of the world, especially for those seeking financial freedom, as it will allow you to cut expenses considerably. For most people, owning a house means expenses. You will be paying a series of monthly bills such as a mortgage, property taxes, electricity, water, internet, and maintenance just to name a few.
Why you should invest in a multifamily rental property?
You’ll want to look into adding multifamily investing to your portfolio at some point. The reason for this is simple: multifamily buildings allow you to increase your income while lowering vacancy rates.
Real estate can be a viable option for those who can’t handle the stock market’s volatility. It’s also a better investment for those who want to play a more active role in increasing their money rather than putting it in a fund managed by someone else. One of the most appealing aspects of real estate investing is that numerous strategies can lead to success.
When it comes to residential real estate, there are two types of properties to consider: single-family homes and multi-family homes. Here are three reasons why multi-family real estate is a better investment than single-family rental properties.
- Investing in rental real estate can help you diversify your portfolio while also providing a stable income.
- With relatively marginal additional expense, a multi-family property can boost your income.
- Multi-family rentals are often easier to finance, compound profits faster, and benefit from scale economies.
What to keep in mind when making such an investment?
We at Real Estate Agency San Diego know the risks and factors to consider before making an investment of this magnitude. Investors should carry out due diligence. It will entail discovering a property that is undervalued and beginning the process of analyzing and evaluating its financial viability. We encourage you to think through the following points if you are thinking of acquiring a multifamily rental property.
When it comes to real estate investing, location is everything, especially when it comes to multifamily homes. With more tenants, every unit will need to appeal to renters; the most desired criteria is usually the location. Investors should look for high-growth, high-yield regions with high demand, and well-maintained neighborhoods.
THE TOTAL NUMBER OF UNITS
The next stage is to assess the property in its entirety. The number of apartments on the property and the number of rooms in each unit matter. Beginner real estate investors should concentrate their search on three categories of multifamily homes. The duplex (two units), triplex (three units), and quadplex (four units) are examples of these. These properties provide the most potential with the least risk, and they are often cheaper.
THE POTENTIAL INCOME
The next stage is to figure out how much money a property can make.
There are online resources that help you evaluate rental pricing and revenue. However, investors should conduct due diligence on their own and examine all factors.
The 50% RULE is basic advice for those who want to be cautious. Rather than paying the mortgage, you should spend 50% of an investment’s revenue on expenses. While this technique may be too gentle for some, it is a decent starting point for new investors.
When it comes to financing real estate, especially multifamily properties, each circumstance is unique. Investors who reside in one unit while renting out the other can qualify for owner-occupied financing. The income from the second unit will be included in the lender’s qualifying ratio. When considering financing choices, investors must also examine their credit scores. This figure will have a significant impact on the qualification procedure. Lenders will consider three factors in general: credit, debt-to-income ratio, and down payment.
Depending on the seller and their purpose, the buying price can vary significantly. As a result, investors must first learn who they’re working with. The treatment of bank-owned properties differs from that of for-sale-by-owner properties. This enables the potential of cost reductions.
Multifamily houses can be an excellent source of passive income investing. However, you must first learn the ins and outs of multifamily investments, including how to locate and acquire them. Using numbers to help you make multifamily investment property decisions removes emotion from the equation.
Let us at Real Estate Agency San Diego advise you and start to invest wisely. Rather than being swayed by outside influences, analyzing the figures on a multifamily property will provide rapid insight into the project. Is the property showing enough return on investment potential for you, or should you avoid it at all costs? Knowing when to walk away from a sale is just as critical as knowing when to press the button.
Do you have a multifamily property in San Diego?
JLM Real Estate in San Diego can help you today and provide you with a free property valuation.
Check out our team page and check which one of our advisors best fit your needs.