Is buying and renovating the average home a little boring? Consider diversifying your investment portfolio (and simultaneously earn a sizable profit) through buying and renovating a multi-family property.
When we say ‘multi-family home,’ we’re talking about apartment blocks, duplexes and triplexes. Because of their scale, multi-family properties are significantly more work compared to a single-family home with significantly more revenue potential. All the extra time and care can translate to stronger cash flows through multiple streams of income. Let’s face it, having three paying tenants on one property means incredible, predictable, passive income without having to lift a finger for years to come.
Compared to Australia’s infamously heavy stamp duties, real estate in the U.S. comes with little to no stamp duty. This makes property investments in the U.S. more attractive to foreigners and more promising when it comes to a solid return on investment.
Multi-family properties are a lot of work but there are some great bargains on the market ready to be snatched up. If you are prepared to do the renovation work to take a three-star residence to a five-star one, it can result in significant returns while balancing your investments over more diverse assets to decrease your risk of capital loss as an investor. If this is something you need a bit of help with, then Star Dynamic can support you. Just reach out to us via email to chat about your options.
What is a multi-family property?
A multi-family property is one large building, divided into multiple individual homes, often with a private front entrance and full amenities. It’s not uncommon for each residence to be identical in layout, or to have mirroring layouts. Be careful with what you look for because anything beyond four is categorised as a commercial property, which operates differently in terms of city zoning and financing.
Multi-family properties are a popular choice for renters because they’re more affordable than single-family properties. As a bonus, they’re usually closer to commercial areas and transportation hubs, making the market highly competitive. Properties in bustling areas mean higher rental yield and investment capital growth and multi-family choices are especially profitable.
There are several types of multi-family properties to choose from:
- Unit or apartment blocks
- Duplexes (two individual family zones)
- Triplexes (three individual family zones)
- Quad or fourplex (four individual family zones)
Not all multi-family properties require renovation, you can also buy and lease as is, however, finding a property that is a little run down significantly reduces your buying costs. Doing the renovation work to bring the property up-to-date costs less than you think and you can simply hire a team in the U.S. to take care of it for you. For example, Star Dynamic has a contractor team in the U.S. that carry out all of our renovations which we provide exclusive access to for our clients. That way you get a much higher rental income and have a desirable and valuable property that will attract (and keep) high-quality tenants.
There are multiple strategies you can implement to get the most from your investment performance. Here are the three strategies I’ve seen to be especially effective during my time working with U.S.A real estate investments:
- Buy and hold – Purchasing a fully renovated property that has at least an 80% occupancy rate will yield consistent profit. Buying and holding is a long-term investment strategy that requires less maintenance because the property is ready to go and already leased. It may cost a pretty penny, but it’s a great way to earn quickly without any downtime on fixes.
- Buy, fix and hold – Properties that need some work come cheaper but require more time and effort to fix, especially to bring them to a high standard and really make them shine. That work will pay off with reliable repairs that will last for years, competitive tenants and higher rental yields, allowing you to quickly recoup your costs.
- Fix and flip – If handling tenants and owning property doesn’t interest you, you can fix and flip. In this case, you find a solid property that’s a little older and undervalued, buy it and organize to have it refitted. Once the renovations are completed you put the property back on the market for a much higher price. You see returns within a few months and can access short-term loans with better lending flexibility.
Single-family vs. multi-family properties
Owning multi-family investment properties and single-family homes differ in more ways than just in terms of scale. They have their differences in price, management styles and even exit strategies. Both have their pluses, but the benefits of multi-family properties are hard to ignore.
Single-family properties are typically cheaper to buy and also to maintain. They also have higher appreciation with time due to strong market demand with both investors and home buyers keen to buy.
If you’re looking for bigger cash flow, then multi-family properties are your best bet. A single-family property will only produce one month’s rent, whereas a multiple-family block will be earning double, triple or even quadruple that amount. One vacancy in your multi-family property is also not as pressing since your other tenants will provide income to cover any losses until the vacancy is filled.
While we always recommend property managers for international real estate, hiring a property manager and a team for more complex investments like multifamily properties becomes essential. It’s a business venture so you need to treat it like a business in order to grow your profits and see increased results. The best way to do this is through hiring a capable and trustworthy team who can help with your business strategies, on-ground communications and keep all the pieces (labour, maintenance, tenant screenings) aligned and running smoothly. This was essential for Star Dynamic to grow throughout the U.S. and also be able to provide holistic support to our clients looking to do the same. We also found that building a trustworthy team was a make or break situation so a great amount of time has been put into building that in the U.S.
The small added cost means peace of mind and fast response times when it comes to managing the property and tenants.
Why are multi-family properties a profitable option?
There are plenty of reasons to invest in a multi-family property. There are not as many out there compared to single-family dwellings so snappy investors tend to snatch them up quickly, and for good reason.
Leases on multi-family properties are easy to fill due to an increased demand for workforce housing in the U.S. Single-family properties are too expensive for those who make up the bulk of the workforce to rent, especially if they are single, or single parents. Apartments and units in a duplex or triplex are much more affordable and fit their needs well.
Millennials are a big part of the workforce now with many looking for affordable housing while they save to buy their own home. The transient nature of workforce housing, like apartments, is appealing because many are not looking to settle down, they are exploring career opportunities and different lifestyle choices.
As an added bonus the commercial environment and great infrastructure usually surrounding typical multi-family properties help increase demand and attract high-quality tenants. This means you can charge higher rents and look to capitalise on short term lease agreements with frequent rent increases.
When it comes to investors who have purchased residential multi-family properties in the U.S. through us, they have seen a 20-22% return on investment annually, which is a huge payout compared to the price of their initial purchase
Multi-family properties require a little more attention, management and maintenance given their scale, but as long as you stick to a strategy that works for you and get the help of professionals and communicate what you want effectively, you’ll see a strong return.
While we highly recommend a multi-family investment in the U.S., we don’t expect you to be able to handle it yourself. Unlike flipping homes in Australia where you can roll up your sleeves and get your hands dirty, the distance of an international investment makes it better to employ a professional team that knows the residential codes and can complete your masterpiece for you. You also need to look into a trusted property management team that can handle enquiries, screen tenants and communicate over the time zones.
If you are interested in learning more about investing in multi-family properties in the U.S., we have an exclusive training guide. This guide gives you the details on buying strategies and property types to help you make a solid purchasing decision.
Download our free guide now.