Most real estate investors have the goal of growing a sizeable portfolio of valuable properties. However, many find themselves stuck in a rut with just one or two properties under their belt. In the meantime, they’re spending so much time managing the investments they’re made, it can be hard to imagine having enough time and bandwidth to deal with much more.
What’s the solution? How can the invisible—yet solid—ceiling over a small portfolio be broken? The answer: investing in multifamily real estate. When you choose to buy multifamily property in Detroit, you can put yourself in a position to leap to the next level of real estate investment.
However, multifamily real estate is often avoided due to the perceived costs. Here are some reasons why taking the multifamily plunge may be worth it—as well as how to get around some of the obstacles.
Please note: The information in this article was current at the time of its writing. Before investing in any property, you should consult with your expert Detroit property management provider about potential ROI.
1. Financing May Be Easier
When considering multifamily real estate, many Detroit investors share the sentiments of Cuba Gooding, Jr. in Jerry Maguire: "Show me the money." Getting the funds for a single-family property may seem like an easy climb in comparison to scaling the taller mountain of getting several hundreds of thousands of dollars—or upwards of a million—to buy multifamily property in Detroit. The key to overcoming this obstacle is all about perspective: Look past the upfront cost and focus on the ROI.
The most experienced investors—bankers—often already view multifamily real estate through the lens of ROI. Although the upfront cost is more, because there are several renters paying money each month, it’s typically easier to recoup your monthly expenses.
For bankers, that means mortgages are more likely to get paid, and a 2007 situation is less likely to rear its ugly head. Due to the decrease in risk, banks are often more willing to grant loans to investors who buy multifamily property in Detroit over their "competitors," AKA, other people looking for a loan right now.
This is especially important to consider in the wake of the COVID-19 crisis and its effect on the mortgage market. At the start of March, interest rates on a 30-year fixed mortgage were only 3.29% on average. This led to a spike near the end of March as homeowners looking to refinance dominated lenders' capacity. The competition was fierce enough that the interest rate skyrocketed up to 3.82%.
2. Grow—and Diversify—Your Portfolio Faster
The portfolio of a real estate investor is unlike that of someone who invests in the stock market or other instruments. “Diversification” for an investor in stocks means owning shares of several different kinds of companies. For a Detroit real estate investor, you can diversify without having to own several different properties; diversification can be achieved by simply having several units. Like all diversification, this helps mitigate risk. When you buy multifamily property in Detroit, you can diversify your portfolio overnight.
You also help your portfolio grow faster than you otherwise could. Even if you buy multifamily property with just a few units (a duplex or a four-plex, for example), you are instantly tacking on multiple properties with one stroke of the pen.
3. You Have More Income—and Less Expense—per Asset
When you buy multifamily property in Detroit, you have several new assets that are—literally—under one roof. This means several expenses can be taken care of at once. Here are some of the most common costs that multifamily properties often share:
- Roof repairs and maintenance
- Gutters and drainage systems
- Driveway maintenance
- Landscaping maintenance
- Water and sewage connections
- Property taxes
- Electrical hookups from the town to the building.
The benefit of having several costs covered under one investment umbrella is you can take care of a single issue, and multiple units benefit from your efforts.
For instance, having someone come out and handle a drainage issue on a building with four units may cost as much as one-fourth of what it would be to do the same for four single-family rentals. The expense the professional would incur in connection with fuel, travel time, and assessing the problem is compiled under one repair instead of four. This means you can cut costs while keeping more of your residents happy at the same time.
4. You Can Hire a Property Manager to Handle It All
If you choose to buy multifamily property in Detroit, you should also invest in multifamily property management. Hiring individual staff for each property in your portfolio will likely take more time and effort: each one has to be evaluated on an individual basis. This may take several meetings, and while any contractor would be more than happy to go the extra mile to make this happen, the care for your entire portfolio is streamlined with excellent property management.
It’s easy to hand over the management of your property to a professional property management company! You don’t have to think of owning several units as an added management burden. A property management company has the personnel and experience to take care of all the units for you—so you can focus on further growing your portfolio.
If you’re climbing the real estate investment stairway and are ready to take the next step—or skip a step—by investing in multifamily real estate, you can reach out to the professionals at JMZ Management. With years of experience helping landlords increase their profits and keeping tenants happy, JMZ can help you climb out of an investment rut and into the multifamily fast lane.