You can get high rewards from multi-family homes and grow your passive cash flow
Most real estate investors opt for multi-family properties for multiple reasons. Notable mentions include growing their passive income, diversifying their portfolio, asset appreciation, and a consistent, recession-proof income stream.
If you’re a newbie investor, it’ll be best to get expert information on the inner workings of commercial multi-family real estate investing. One of the many ways to uncover these tips is by listening to the Icons of Real Estate Podcast.
On this revolutionary podcast, real estate professionals like John Casmon grant insight into the tricky areas of the real estate industry and how investors can make headway.
In the 112th episode, John Casmon gives context on the ins and outs of the commercial multi-family real estate scene and how people can make profitable investments without prior experience.
For perspective, John Casmon is a multi-family real estate entrepreneur who partners with others to get mind-boggling results. He’s also the owner of Casmon Capital — an entity that helps individuals and families earn passively via their real estate investments.
This in-depth commercial multi-family real estate guide examines its notable advantages and how investors can source and finance related properties.
What Is Multifamily Commercial Real Estate?
Multi-family commercial real estate is made up of multi-unit residential property used to generate cash flow.
Multi-family properties containing two to four units are considered residential properties.
Conversely, a commercial multi-family home has five or more units. Some commercial multi-family apartment buildings have over 1,000 apartments in a single, multi-building property.
Title deeds differentiate commercial and residential real estate properties from each other. Structures like condominiums, townhomes, BRRR, and Airbnb are considered residential because they have a single title deed.
Duplexes, triplexes, and quad-duplexes usually have a single deed, even if they contain multiple residents. However, an apartment complex containing over five units is a commercial real estate property with single deeds for each unit.
Benefits of a Multi-Family Commercial Real Estate Investment
Here are some advantages of multi-family commercial real estate investments:
Strengthen Your Investment Portfolio
Multi-family properties are income-generating structures vital to wealth growth. Owning a single-family home diversifies your investment portfolio one asset at a time.
However, investing in commercial multi-family real estate properties, like duplexes and apartment complexes, will quickly increase your chances of generating cash flow.
Low-Risk Investment
Unlike stocks or other volatile investments, multi-family real estate properties is a low-risk investment. People will always seek shelter, and owning these structures is an excellent way to diversify your portfolio and create a continuous income stream.
More Affordable Management
If you own several single-family homes, you’ll need to hire multiple property managers to oversee its daily operations. However, this path can prove expensive in the long run.
Conversely, owning a multi-family structure lets you hire one property manager. While the need to employ more people to maintain the premises might arise, the income generated from rented units is enough to cover associated expenses.
What’s better?
You can self-manage a multi-family property; it’s easier to oversee and maintain closely knit units alone than properties in multiple locations.
Less Financial Lag between Tenants
Losing tenants in a single-family property could mean losing your cash flow until new renters arrive. But with commercial multi-family homes featuring many tenants, financial disruptions are non-existent, as rent from other units can settle expenses if one or more tenants leave.
Easy Financing
The down payment for multi-family commercial homes is higher than for single-family homes. On the surface, this might sound like a disadvantage. However, getting mortgage approval from banks and private lenders is smooth sailing if you intend financing a multi-family structure with multiple tenants.
Why? Mortgage providers view commercial multi-family properties as less risky — owners don’t depend on a single tenant to generate income.
A commercial multi-family home listed on the MLS listings for prospective buyers
How to Find Commercial Multi-Family Homes
Here are some ways to find commercial multi-family homes to buy.
Search the Multiple Listing Service
Brokers or landlords list commercial multi-family properties available for sale on the Multiple Listing Service (MLS). The MLS is linked to numerous real estate marketing platforms, including Trulia, Zillow, Realtor.com, and more.
Since properties on the MLS have limited information online, contact your broker for full details of MLS-listed homes.
Off-Market Deals
The disadvantage of searching the MLS for multi-family homes is the competition you’ll likely face when searching for a great alternative. However, it’s critical to note that some of the best multi-family purchases come from less-competitive off-market deals.
To uncover off-market deals, scour platforms like Craigslist, FSBO.com, and other websites leveraging real estate SEO to show their credibility to “would-be” buyers online. With multiple landlords listing homes on these platforms to avoid brokerage service payments, you can spot a decent property after a deep search.
Directly Asking Sellers
Another way to find multi-family properties for sale is by asking their owners if they want to sell. Start by sending homeowners a postcard or letter indicating your interest in buying their home.
You can also tell if someone wants to sell their home via some indicators.
For example, if someone owns a multi-family landholding for over two decades, they might agree to sell once you pop the question. Military personnel relocating may also be interested in selling.
Additionally, ask your relatives if they know someone willing to sell their multi-family homes. Even if they’re unwilling to sell today, they might keep your proposal and contact you when they’re ready.
How to Finance Your Multi-Family Commercial Real Estate Property
After uncovering multi-family commercial real estate investment opportunities, consider financing. Most investors finance their purchase via a mortgage, and commercial banks often want borrowers to make a 25 to 30% down payment.
When investors can’t pay the required down payment, they resort to various creative financing opportunities. One way to go around this difficulty is owner-occupying the multi-family property.
Buyers seeking to owner-occupy these structures can receive better mortgage terms — as little as 3.5% in down payments and lesser interest rates.
Commercial multi-family property loans (for those with five or more units) integrate different terms from strictly residential loans. Typically, lenders want owners of prominent properties to show proof of previously running multi-family homes and a viable financial standing.
A rock-solid marketing campaign is required to excel in commercial multi-family real estate investing
Conclusion
If you’re looking for a solid route to make wealth and diversify your investment portfolio, consider the commercial multi-family real estate market.
However, if you’re a newbie, navigating this sector’s ins and outs can prove daunting. To ensure you start your investing journey on a high, listen to revered real estate professionals like John Camson on the Icons of Real Estate Podcast deliver context on profitable real estate markets.
Although the commercial real estate market may seem incentivizing, newbie investors might need help to get the ball rolling. To simplify the process, listen to the best Icons of Real Estate Podcast and get inundated with vital tips and nuggets to kick-start profitable real estate investments from professionals like John Casmon.