Once you've gotten some experience with single or smaller scale multi-family homes, you may be ready to begin investing in larger residential properties. It's important to gain a few year's experience before jumping into larger multi-family homes because you will have dealt with a variety of landlord issues already and can apply that knowledge to a larger property that will present more challenges.
The tenant population of multi-family properties can be diverse, with everything from singles and newlyweds, to retirees and empty nesters. This type of investment is most often undertaken by individuals with multiple years of investment experience.
When you begin to invest in larger residential properties, the financing environment changes substantially. You will likely need to have at least a 25 up to 35 percent down payment. The bank or financial institution will usually look at the performance of the building that you want to buy and your previous experience before approving any loans. This can make it more difficult to buy a larger building, and you may want to consider a partnership with another investor who have done it before, and hire a reputable property management company to boost your investor profile.
WHAT SHOULD YOU UPGRADE TO?
There's several different types of multi-family properties that you can invest in once you decide bigger and better things are on your horizon. You can pick from a few different categories: garden apartment complexes, townhouses, and low or high-rise apartment buildings. The value of each will likely vary depending on the specific circumstances of each property. We've outlined the details of them for you below.
High-Rise Complexes – These can be defined as elevator buildings with many floors and many apartments in each building (if there are multiple structures). Typically, high-rise buildings are constructed in strategic locations where land is very scarce and, therefore, expensive. Thus, the higher land costs are divided across multiple units, providing an economically feasible cost per unit. Of course, the rents and net income are nevertheless commensurate with the high land and construction costs. High-rise apartments offer economy of scale; in other words, because everything is in one building (such as the electrical and plumbing systems), maintenance repairs and management functions are easier to accomplish and keep track of. Therefore, they're frequently easier and less expensive to operate on a per-unit basis than more sprawling complexes.
Low-Rise Complexes – Low-rise complexes are the most common choice for investing in larger multi-family units. They are only a few stories tall (two and half up to three and a half stories), and units can range from nine to 39 units. Generally, most of these properties are older buildings. They share the same advantages of a high rise, except for the price. Because of the economy of scale, these complexes are cheaper, which makes it ideal for investors new to multi-family properties. When compared to high rises, low-rise complexes typically have a higher land-to-value ratio. This means the land on which they sit on will appreciate more and achieve more capital growth. If and when you sell this investment property, you'll walk away with a pretty penny.
Garden Apartment Complexes – These properties usually consist of groups of three story walk-up structures with up to twelve apartments per building, or rows of apartments similar to townhouses. A garden apartment complex may, however, have as large a number of units as a high-rise structure, though they're typically spread between various buildings over several acres of land. Because they're often (but certainly not always) small and more management intensive, garden apartment complexes usually sell for lower relative prices, giving a higher rate of return in comparison to other properties that are easier to manage.
Upgrading to a larger multi-family investment property can be intimidating. There's a lot more to handle, but you stand to make a lot more money. View listings to determine what's best for you. If you feel like a high rise is a bit too much, look at a garden or low-rise complex. If you want to go all in, a high-rise would be for you. Whatever you choose, make sure it's something you're comfortable with.