Many people who invest in rental properties choose to buy multi-family properties such as apartment buildings and duplexes. And a lot of them wind up making a lot of money. Still, buying multi-family properties isn’t for everyone, and it may not be the best way to get started in real estate investing. Is it right for you? To make the right decision, carefully consider these pros and cons of buying multi-family properties in Los Angeles.
Pros of Buying Multi-Family Properties in Los Angeles
Let’s begin by examining the pros of buying multi-family properties:
BETTER CASH FLOW
Keeping a healthy cash flow is a perennial challenge for those investing in rental properties. But with multi-family properties, you’ll see larger cash flow. You have more tenants paying rent, so you have more money left over after making the mortgage payment and taking care of other expenses like insurance and maintenance.
Buying multi-family properties in Los Angeles also streamlines the mortgage end of things. You have to deal with only one mortgage for multiple tenants instead of multiple mortgages for single-family dwellings to accommodate an equivalent number of tenants. So you save time, a ton of paperwork, and possibly money.
Similarly, dealing with insurance matters is much easier for the same reason. You will have only one insurance policy for a multi-family property instead of several policies for single-family properties.
Multi-family properties also present less risk, especially with respect to vacancies. Because of the multiple units (at least two), the risk of total vacancy is extremely low. If a tenant moves out, the other remaining tenants will keep your cash flow going. Further, most of your tenants will pay rent on time, and, again, that will make up for the one or two tenants who tend to pay late.
The competition in the single-family rental market is pretty keen, but the competition for buying and renting multi-family properties is less. So multi-family properties present an easier way to get into real estate investing, and you’ll have an easier time acquiring tenants.
BETTER LONG-TERM VALUE
the value of multi-family properties is based primarily on their income potential. They aren’t subject to fads and tastes when it comes to price and value. So most of the time, they are capable of providing solid growth in long-term value.
Cons of Buying Multi-Family Properties in Los Angeles
Now, let’s examine a few of the cons:
GREATER INITIAL EXPENSE
Obviously, buying multi-family properties in Los Angeles means that you’ll have a bigger initial cash outlay and will require a much bigger mortgage. And this means that multi-family properties may be cost-prohibitive for people just getting into the business.
Multi-family properties will take up a lot more your time. More tenants mean more maintenance and more repairs to make, which all takes more of your landlord time.
MORE EXPERIENCED COMPETITION
While multi-family properties have less competition, that competition is typically more experienced – that is, investors who are pretty savvy because they’ve been in the game for a long time. And that means you’ll be up against more experienced competition when it comes to buying and getting tenants.
Owing to the lower demand, multi-family properties are fewer and with less availability than single-family properties. So you will have fewer options and will have to put in a lot more work to find potential properties.
Landlords are already saddled with a host of regulations and that regulatory burden only increases with multi-family properties. So if you plan to get into buying multi-family properties in Los Angeles, you need to do your homework on these laws and stricter regulations.
Putting It All Together
Multi-family homes can be highly profitable, as well as easier to manage and with less risk. But is buying multi-family properties in Los Angeles right for you and your real estate investing business? To make that determination you need to do your research, think about your business model, and look at long-term goals. It’s also a good idea to consult your local real estate agent who has a good handle on the rental market. Discover how our agents can assist you in making the right decision and buying multi-family properties.