Marjorie is a journalist and media veteran. Her articles range from communication to money, health, and behavioral psychology.
Let’s cut to the chase: Real estate investment is the most solid way to build wealth. There will always be a demand and its value is sure to appreciate regardless of fluctuations in the market. Aside from the advantages of having tangible assets, real estate is historically a better hedge against inflation compared to stocks.
In 2019 in the United States, home values increased by 7.2% compared to 2018, according to Zillow. On the other hand, there are 50% fewer investors in the stock market now than in 2007 because they are shifting to real estate. Even millennials are getting their skin in the game. According to the Real Estate Investing Report conducted by Harris Interactive, 55% of millennials are interested in real estate investing, even more than Gen Xers and Boomers. Real estate has bounced back big time since 2008, and new investors are taking notice.
There are a number of ways to make good money from real estate: there’s flipping, wholesaling, and being a proprietor of single-family or multifamily holdings. Each one has its risks and rewards, but what’s important is to put your money where it can grow.
Traditional real estate investment options
Flipping comes with the heavy risk of losing money if the unit becomes a flop. You may also be buying a mixed bag of surprise expenses along the way. In fact, even if you live in your fixer-upper before selling, it could be more of a liability than an asset.
Wholesaling can build your wealth quickly because there are less requirements and it costs significantly less, but it’s not a continuous source of income. Once you sell that property, it’s done. That’s assuming that you have a good network of buyers who are ready to snap up your project once it’s ready.
Getting passive income by renting out property is assuredly the best way to generate wealth from investing. A recent report by Apartmentlist.com marked a stable increase in the year-over-year rental growth trend, and if you decide to sell you would definitely make a good sum from the markup.
Investing in single-family properties is attractive for the fledgling investor because you can focus on one property at a time, develop it, then put it in the market. Homes, however, cost a lot to maintain compared to an apartment, whose maintenance is shared by multiple occupants. They also have less amenities that some renters find attractive.
These days, multifamily real estate is the name of the game. The return on investment is higher compared to other forms of housing, plus it makes better financial sense.
What is multifamily real estate investing and how does it change the lives of its investors?
Apartments, condos, duplexes – if a residence can accommodate more than one family, it is a multifamily property. There are ostensible advantages to investing in multifamily real estate, one of the most obvious is the convenience.
The expediency of buying multiple properties without having to go through multiple negotiations, inspections, and transactions is one of the reasons investors prefer buying this type of real estate. But that’s just the start.
Imagine having 10 apartments, but spread out across the city. Not great if you have to check on each one, right? The amount of income that an apartment complex generates can justify hiring a property manager to take care of your investment. Having diverse properties in one place not only saves on operational costs, it also saves owners’ time and energy, and consequently results in higher returns.
Multifamilies may seem more expensive than single-family real estate, but not when you consider that you are buying each unit at a lower cost. Construction costs are also split, making it more affordable. Multifamily investments are in fact preferred by lending institutions, snatching lower mortgage financing rates compared to other types of properties.
Your return on investment is also more secure on multi-occupancy holdings because a vacancy in a single family home means zero income while it’s unoccupied; whereas one untenanted unit in an apartment building cuts only a fraction of your earnings. There’s less risk if you’re still paying mortgage, and foreclosure is less likely to happen
There are plenty of multifamily property investment success stories; however, this type of investment is not for everyone. Because of the market proficiency needed, it is only advisable for a skilled investor - or at least one with good financial advisers. Although the rewards are great, the losses are also exponentially bigger when you make a misstep. The good news is, each step in the right direction is sure to dramatically multiply the value of your portfolio.
I hope that gives you enough ideas to think about whether this kind of real estate investment is for you. Whatever you decide, make sure you are armed with the knowledge and guidance necessary to make your investment ventures come to fruition.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
Marjorie Dumont (author) from France on July 22, 2020:
Thanks for your comment, DowntroddenInDC! I agree that the capital is higher than other types of investments, but it is much more likely to be approved by a bank because of the guaranteed cash flow. I would also hire a property manager if I had a big portfolio, but if I only had an apartment or two (as a starting investor) managing new properties is not a big hassle. That said, it's still up to the investor to decide what's best for them and where they are financially.
DowntroddenInDC from Houston, TX on July 20, 2020:
Yes, for sure, but the capital barriers to entry are high and starting out property management takes up a ton of time.