A multifamily home is a building composed of numerous living units. Duplexes, triplexes, and town homes, are common examples of multifamily homes. If you have never invested in real estate, multifamily homes may be a great place to start. Although more expensive than single-family homes, multifamily homes create numerous investment options for the investor.
If you have yet to purchase a home for yourself, you may want to look at a multifamily property. As mentioned above, it will be more expensive than a single-family home, but if you occupy one of the units for yourself, your investment property also becomes your primary residence. Therefore, you get the benefits of cash flow from renting the other units and the benefits of having a place to live. Additionally, when you rent the other residences in your multifamily property, the cash flow from the rents may be enough to allow you to completely cover the mortgage payment and put extra money in your pocket.
As mentioned above, cash flow is a great component of multifamily properties. Because you have multiple units, you can collect a greater amount of rent in total than you could from a single-family residence. Keep in mind, however, that you have more units to rent. In a single-family residence, you have only one space to rent, while in a multifamily residence, you could have three, four, or more. As such, it may be more difficult to rent all the units of a multifamily property.
Based upon the real estate profile of the location of your multifamily property, your multifamily property may appreciate quickly. The equity created from the appreciation could be used for other investments and/or to improve the current multifamily property. Additionally, you could sell the multifamily property, and purchase another property through a 1031 exchange (a program offered by the IRS), and therefore could defer capital gains taxes.
These are some of the benefits that can be obtained by investing in a multifamily property. You could purchase an investment property and a residence at the same time, you could obtain significant cash flows from rents, and your property could quickly appreciate. The equity created from appreciation could be used for other investments, for improvements on your current property, and could be utilized in a way to defer taxes.
Consider all of the benefits when looking to invest. However, it is important to remember that, although all of the benefits and more exist, a multifamily property will be more expensive than a single-family residence and may be more difficult to rent because you will have to find more tenants to occupy all of the units.