The Pros of Multi-Unit Dwellings As An Investment

Economies of scale is one of the big advantages of owning multi-family real estate. Time identifying a property, crunching the numbers and performing due diligence is leveraged with multiple units. Each renter generates a separate cash flow providing diversity in the income stream. In a similar fashion, repairs costs are leveraged by spreading costs over a larger asset base. While the cost of a new roof or other major repair is greater for an apartment building, it is less than the costs associated with replacing the roofs of multiple single-family homes.

Another advantage of multi-unit dwellings is the simplicity of dealing with multiple tenants at one location. Versus lots of tenants spread across multiple properties. Landlords also gain better negotiating power with property managers and other service providers when multiple units are at the same site. More efficiency means a higher return on investment.

More Income Equals A Better Investment

More reliable monthly income is another benefit of multi-unit dwellings. Instead of one rent payment there will be multiple rent payments coming in to offset monthly expenses. Risk is generally lower with multi-unit dwellings since odds are good that some apartments will be generating rent even if other units are vacant or under construction. It’s rare for a multi-unit building to ever be entirely empty.

More income per square foot is often possible with multi-unit buildings.  A single-family home in a desirable LA neighborhood may fetch rents of $3,000 a month or higher, but a multi-unit building at the same location could easily command rents of $2,000 or more per unit. In this scenario, a six-unit apartment building could generate north of $12,000 in monthly rent.

Investment Appreciation Is Higher With Multi-Family Real Estate

Appreciation potential is usually greater for multi-unit dwellings. Regardless of upgrades that have been made, the value of most single-family homes is closely tied to surrounding properties. Different methods are used to value multi-unit dwellings and building owners also have more options for maximizing the value of the property. For example, a landlord could increase the value of an apartment building by making upgrades that support higher rents or adding revenue generators such as on-site dry cleaning or day care.

The Cons of Multi-Family Real Estate As An Investment

Tenant turnover is one of the biggest hassles of owning a multi-unit building. Tenants leave for all kinds of reasons and even properties that are well-managed and maintained experience turnover. There is also risk from tenants who stop paying and must be evicted. Some risk can be mitigated by good tenant screening, but landlords must plan for some tenant turnover in the building budget.

Acquisition prices are often higher for multi-unit buildings and purchaser usually must come up with a larger down payment, sometimes as much as 25% of property value.  Lenders often demand more cash upfront from landlords who don’t plan to live at the property. Renovation and maintenance costs also run higher as well, requiring landlords to maintain significant cash reserves. On the other hand, it is sometimes easier to secure financing on multi-unit apartment building since lenders usually attach more weight to the property’s cash flows and are less interested in the borrower’s credit history.

Multi-Family Real Estate Investing Takes A Larger Investment

Larger investments carry greater risks. Delays in completing renovations or difficulties in securing tenants can result in massive losses for apartment landlords. Cash burn rates may also be higher due to more spending on debt servicing and maintenance. Experience in owning multi-unit buildings greatly helps mitigate these risks. Hence the popularity we are seeing from our clients who graduate up from single family home rental properties to multi-family.

Here at Coastal Capital we understand the challenges facing buy & hold real estate investors. Most of our clients are repeat because they value time and how fast we close on multi-family buildings so they can maximize their investment. To learn more about us please visit our Borrower Page.

A hard money loan can provide quick relief

Real estate is interconnected with so many other industries, it’s not surprising that the real estate market is going through some ups and downs during COVID-19. Some landlords are finding themselves in tight spots when renters can’t keep up with their monthly payments. If you find yourself in such a situation, you might be able to negotiate with your mortgage lender, but many property owners are finding this to be a dead end after following a long rabbit hole. Fortunately, hard-money loans offer a viable alternative.

Especially in California landlords are facing challenges

Due to zealous restrictions, approximately 3 million California residents are unemployed, and about 1 million of those are renters. This naturally impacts their ability to pay their rent on time and in full. With about one in seven households struggling to pay their rent, many landlords are seeing the impact. Even though the unemployment rate is improving, it’s still in the double digits. Many tenants are still struggling to keep up.

For landlords with commercial tenants, it depends on the types of properties you own. For example, many bars, restaurants, and salons are suffering right now. They simply are not bring in the same revenue as before. However, if your properties are home to essential businesses that are thriving during this time, collecting rent payments might not be an issue.

Tenant protections in California

The recent tenant and landlord protection legislation prevents landlords from evicting tenants through Feb. 21, 2021. The law says that missed rent payments due to COVID-19 but how can you verify? Between Sept. 1, 2020, and Jan. 31, 2021, tenants must pay at least 25 percent of their rent to qualify for this protection. For most property owners, that’s not enough. It’s true that tenants aren’t completely off the hook—landlords can start recovering debt in March. But what are landlords to do about the months in between?

In addition any landlords are lowering rents for a period of time for existing tenants and offering discounts in order to entice new tenants to rent vacant spaces. Incentives include free rent for one month, free parking, and more. Such offers might get new tenants in the door or keep existing renters in the building. However these types of concessions put a dent in landlords’ wallets.

How a hard money loan can help during the COVID-19 pandemic

Hard money loans are based on your equity in the property, not on your personal financial history or credit score. This means that if you have enough equity, you can get a hard-money loan to cover the gap. Even if you can’t secure a traditional bank loan with enough equity you can get cash in a week.

These trust deeds are designed to provide short-term capital to help you cover the mortgage and related expenses until you’re able to generate more rental revenue. Most importantly hard money loans enable property owners to keep current on their mortgages, avoiding expensive late fees and expensive default interest charges. Often the costs with obtaining a small hard money loan far outweigh the costs of going into default on a property.

Coastal Capital Group is here for you

If you have tenants who aren’t able to keep up with their rent, Coastal Capital allows you to use your equity to secure cash. Hard money loans close fast—think days, not weeks—so you can keep up with your monthly payments even if your renters can’t. For more information and to learn more please Apply today.