Since the US housing market collapse, the single-family home has become the standard for many new real estate investors. But as followers of Jason Hartman’s strategies for creating long term rental income know, the best way to maintain a stable cash flow from your investments is to diversify as much as possible by purchasing as many different properties as possible. An often-overlooked way to do that – and to spread your risk – is to consider investing in multiplex properties.
Multiplexes – also called multifamily properties – include duplexes, triplexes and quadruplexes, separate living units located on the same property. Single-family homes, as the name makes clear, offer just one living unit. Many lenders consider a multiplex of up to four units as equivalent to a single family home in terms of financing; properties of five or more units are considered commercial real estate, where commercial mortgages and many other different considerations apply. While both single-family homes and multiplexes offer opportunities for investment income, multiplexes have some advantages.
Single-family homes are still readily available in some markets, thanks to the delayed processing of foreclosure cases in the aftermath of the housing crash. These homes can often be bought for cash. A single family home is often easier for a new investor to maintain, especially if the property is local. But this kind of property has only one renter –and a vacancy for any length of time means no income yield at all unless you’ve invested in several such homes.
Multiplex properties spread the rental risk. Unless all units go vacant at once, some rental income is always flowing. An investor might choose to live in one of the units, which helps subsidize living expenses and make maintenance and upkeep easier. But in this case, it’s important to monitor tax deductions related to your home office and other expenditures related to your investing business.
Although multifamily properties can offer advantages in terms of keeping a steady income flow, they can be more difficult to sell. They may also require more overall upkeep than a single-family home, because of frequent tenant turnover. And, real estate advisers warn, before purchasing a property it’s important to be sure that all units are in compliance with local building codes, since some property owners have added on units without getting the proper zoning approvals.
Although single family homes may appear to be the best investment, diversifying your real estate holdings in as many markets as possible, as Jason Hartman recommends, may be the wisest investment strategy to ensure a continuous cash flow and reduce the risk of a market collapse that affects your entire investment. Since multiplexes of up to four unites can be purchased under the same terms as a single family home, investing in these properties can offer a profitable way to spread the risk around. (Top image: Flickr/jjorogen)
The Jason Hartman Team