The term "Multi-Family Homes" has existed in the US for a number of years now and the sector has proven to be very well established in its own right. With the downturn in UK property prices, the concept is now starting make headway in the UK.
Sales of multi-family properties in the US during the first half of 2010 were significantly higher than the corresponding period one year previously. Indeed, while transaction levels in 2010 are still expected to remain significantly below 2007 levels, many analysts remain confident that sales of multi-family properties will remain strong through the end of the year.
From the point of view of an investor, multi-family properties can make perfect sense. Even for buyers with little or no experience in the market, the option to purchase a duplex (two-unit home) or triplex (three-unit home) and use the rental income to cover the mortgage payments is a tempting prospect.
In many ways, owning a multi-family home is considered a lower risk than a stand-alone residence. With good credit and credentials, it could mean more favourable interest rates and terms on the front end of a loan.
However, many real estate investors continue to overlook the investment option, despite the fact that there are plenty of reasons for investing in it over purchasing multiple single family residences. And the current economic climate would suggest that there are plenty of opportunities to make a tidy profit.
Multi-Family Opportunities in the UK
The current difficulties presented when looking to secure a mortgage coupled with news that house prices in the UK are likely to fall and stagnate over the next few years means that the rental market is booming.
Added to this, the increased need for apartments and renting means that yields are likely to be pushed up in the long-term as demand intensifies.
Multi-family houses provide a relatively easy entry into the real estate marketplace. If you don't yet own any real estate, you don't have very much cash at your disposal, or you want to combine your first home-buying experience with your first investment property, a multi-family house may well be the solution to your needs.
A multi-family property can be used as an effective first building block in a real estate portfolio. The capital needed for such a purchase is often relatively small and the potential resale market is quite large.
The investment option also holds certain advantages over single family units which could lend themselves favourably to the current UK market conditions.
For starters, it generates income even if it is not fully occupied. Multiple tenants also translate to multiple income streams so even if you lose one or two tenants you have others to sustain your income.
This, is turn, helps to reduce investors' exposure to risk. Think about it this way; if you have a single family house and you lose your tenant, you immediately lose all of your income. Compare this to a multi-family property, where even if you lose a tenant, you will still have rent coming in to pay any expenses.
While because of the bigger cash flows, investors can afford to hire management companies to manage their tenants, thus eliminating the hassle and time that is often associated with hands-on renting.
Multi-family properties should be viewed as a self-sustaining investment option,
with the income which they are able to generate helping to cover the cost of the mortgage, utilities, taxes and all expenses and in this current market, where rental demand remains high, could prove to be the ideal purchase for a savvy investor.
- Friday 17 December 2010