Minimize your risk by investing in multi-unit rental properties

Written by Marc on March 12th, 2007

Some people consider real estate investing risky. Others consider it crazy. If you want to minimize your risk consider investing in multi-unit rental properties.

Why multi-unit rental properties?

1. Consistent rental income

If you are renting out a multi-unit building, chances are that at any given point it will not be completely vacant. Sure, some of the units may have no tenants, but you will still be getting rental income from some of the units. Compared to a single unit rental property (if you have no tenants, there is no rent collected) this should minimize the risk and the carrying costs should one of the units be empty. If you factored in some vacancy allowance into your initial calculations before purchasing the property, you should still make money when some of it is vacant.

2. Ease of renovations

With a single unit property, if you would like to do some renovations, usually you will have to do it when the unit is vacant. This means that you will have to carry the properties expenses while you are doing the renovations. On the other hand, a multi-unit property can be renovated in steps – as tenants move out, you can renovate their suite before renting it out to a new tenant. Not only does that spread out the outlay of cash for the renovations, but you also collect rental income on your other units while you are renovating.

3. Ease of financing

In most cases, banks and mortgage brokers look very closely at your income and credit history when you are looking for a mortgage on rental properties with three or less units. Once you get into looking at buildings with tens or hundreds of units, the banks are more interested in the property being able to carry itself rather than your personal income. Most investors find it easier to get approved on a loan of say five million dollars for a 108 unit property compared to getting a mortgage on a duplex. Reason being, banks and brokers realize that multi-unit dwellings are also less risky of an investment.

Next time you are looking at investing in a rental property, consider multi-unit dwellings. Not only are they more consistent investments, but your bank or mortgage broker would be more likely to give you that mortgage you need to purchase it.

Read more articles on Real Estate Investing.

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