Sometimes multi-family units consisting of four to five individual family dwellings are preferable investment options compared to single-family properties. Multi-family real estate can be a solid investment choice as the rental income usually easily outstrips the expenditure on mortgage payments and maintenance—allowing the property owner to turn a profit with little to no hassle. While the significant upfront sticker price of multi-family properties can give potential investors cause for concern, the actual price per unit is actually considerably lower than it would be if you were to buy a single-family residence. In these scenarios, hard money can be utilized to obtain a loan in a relatively short period of time to finance the purchase of anything from commercial complexes to apartment buildings and everything in-between.
Pros of Multi-Family Real Estate Investments
The following is a brief overview of the many perks of opting to invest in a multi-family property:
- Consistent Cash Flow: Multi-family real estate produces healthy cash flow on a monthly basis regardless of whether vacancies pop up or tenants miss their rental payments. To illustrate, a 20-unit property would only be 5% unoccupied if a single tenant vacated their residence. Conversely, a single-family property would be fully unoccupied and generate zero cash flow if the tenant chose to leave.
- Portfolio Diversity: Investors seeking to build a broad portfolio of rental investment properties can develop their collection of real estate relatively fast by acquiring a multi-family space. Compared to buying 20 individual single-family residences, an investor can simply purchase a single 20-unit multi-family complex. This is significantly more of an efficient approach than having to deal with 20 different sellers or obtaining 20 different mortgages.
- Outsourcing: Owning a multi-family property gives the landlord the option of hiring a property manager to reduce their day-to-day workload. Property managers are paid to ensure tasks such as rental payment collection, tenant screening, maintenance and evictions are conducted smoothly—allowing landlords to focus more on investing as opposed to these time-consuming, low-level aspects of property ownership.
Market Focus: Strong Demand for Multifamily Residences in Northern New Jersey
Elevated costs of owning a home and the absence of SALT deductions on federal income tax returns will collectively continue to increase the high demand for apartment complexes across Northern New Jersey. This demand has led to a rise in construction projects as local municipal districts are settling their affordable housing litigation with development entities and delayed projects—especially those located near central public transportation centers, are being finished.
From an investment perspective, opportunities are becoming more limited in the inland communities surrounding Bergen and Hudson Counties, which are now experiencing compressed cap rates despite the notable rise in rates in 2019. This trend has seen real estate investors searching to the northwestern sector of New Jersey, where they can still obtain properties in the range of six to seven percent cap rate. This has resulted in areas including Paterson and Elizabeth experiencing significant upticks in real estate transactions compared to recent years. The vast majority of this market activity is attributable to out-of-market investors looking for favorable yield.
Another dynamic multifamily market is the area surrounding Hudson County, where a gradual influx of new employment opportunities continues to ramp up the number of households in Norther New Jersey—an area where the rampant homeowner costs are forcing many to consider renting instead. Monthly rent for luxury residents in the Hudson area often exceed $3,000, which increases the regional average rent over $2,000—an unprecedented benchmark.
There is still a considerable gap between the going rental rate for modern Class A construction properties and older Class B and C units. This disparity can run anywhere from a $500-$700 difference in monthly rental charge depending on which submarket the property is located in. This offers a great opportunity for real estate investors to increase value to these properties and still be favorably positioned in the rental marketplace.
For borrowers looking to purchase a multi-family property or even for those who are already owners of a multi-family property, one of the best loan programs for multi-family properties is a 30-year rental program or “term loan” obtainable from anywhere from 4.5% to 5.99%.
Contact a member of our Park Rock team at firstname.lastname@example.org today to learn more.