Investing In Commercial and Industrial Property – Part 1: Multifamily Housing

Smart-Investors-Series-Real-EstateIf you’ve been considering adding commercial property to your portfolio, you’re not alone. Some of the economy’s strongest performance in recent years has been in commercial real estate, multifamily properties in particular.

And that’s not a trend experts expect to end anytime soon. In fact, CoStar reports that the Freddie Mac Multifamily Investment Index was over 146 for the third quarter of 2013, compared to the historic average of 124.6.

This article is the latest in our Smart Investor Series and the first of two on investing in commercial and industrial property.

Considering Multifamily Properties

Many investors already have residential property as a part of their portfolio, thus multifamily properties can be one of the easier ways to get into commercial property ownership. In fact, industry pundit David Lindahl points out (in a very entertaining article, courtesy of REIClub.com) that:

Economies of scale are in multi-unit buildings. If you have six single family houses opposed to one six family, you have six roofs to be replaced or repaired, six lawns to be maintain, six tenants spread out throughout your city or town.

In your six family[,] you have one roof, one lawn and your tenants are centrally located. Economies of scale are in your favor.

David’s point about effort related to maintenance and upkeep is a very important one – especially if you’ve decided to try and do that work yourself. There is only so much time.

If you do choose to use a property management service, it will still be more cost-effective with a multifamily property than with the equivalent number of single family residences.

A Better Cashflow Picture

Investing is all about money, so you want your investments to have both long term value and near term cash flow. Without a doubt, the economies of scale that David wrote about work in your favor, but a multifamily property also allows you to spread your risk across a larger number of tenants.

Consider this: you own a rental home, your renter gets promoted and moves out of town. No one’s fault, but you’re out 100% of the rent. Of course, your apartment renters will move too. But not all at once and, apartment vacancies are at historic lows across the country. You’ll probably have a new renter within a week.

You probably know people who have done well investing in single family residences, often flipping them. David Lindahl’s point is that “if you think of the all the people you know who have become extremely wealthy through real estate, you’ll realize that they did it through owning multi-units (apartments).”

Put The Pros On Your Team

From multifamily investments to retail and industrial properties, count on KerNors Capital Group for timely, expert investment advice. Since 1924, we’ve excelled at protecting and growing clients’ wealth. Call today to get started.

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