Multi Family Investing
Multi family investing has always been popular. Experienced investors buy multi family homes of 10-15 units or more. They are always actively looking for such buildings. This was not the case until recently for 2 family homes and rarely for 3-4 family homes. However the market changed over the last few years. Today two family homes for sale are in very high demand along with commercial multi family investing. Let’s take a look at this.
When The Market Changed
I don’t want to leave the wrong impression. Two family homes have always sold because they’re viewed as a good idea by residential investors. It’s just that today the market is much stronger.
According to the New Jersey MLS, the change occurred after 2015. Bergen County 2-4 family sales went from 649 in 2015 to 809 in 2016. That’s a whopping 25% increase. The time it took to sell these properties reduced by 12% too. As a result, prices went up. Median prices rose by 9% and average prices by 6%. The 2016 average sales price was $442.010 and the average median price was $415,00
Since then the number of sales has stabilized. 2017 had only 5 more closings while prices rose (6% average and 5% median) So far this year the number of 1st quarter sales is flat. It’s too early to make sense of sold figures. Under contract numbers show a 9% decline due to a lack of inventory. We know this because marketing time decreased by 9%. When demand is up sales happen quicker.
There is no way to measure this. Why multi family investing has taken off in the residential market is not something you can quantify. However here is what I see: Buyers want investments that bring them value.
Many are looking long term and taking a big picture look. They don’t have a lot of money but the cash they do have isn’t doing much. Most people don’t have large portfolios at private investment banks earning them 8-9%. Where can they get a decent return? Two family homes offer them an opportunity for future appreciation, quicker equity growth and over time positive cash flow.
Here is another reason – rents have gone up a lot. A few years ago I’d tell you that the average 1 bedroom apartment in an older two family would rent for $1,000 plus utilities or $1,150 with utilities and a garage spot. Today it’s $1,200 and $1,350. That’s around a 20% increase in a few years.
Multi family investing gives residential buyers something else too – a lower monthly cost. This is important because it allows them to save.
Let’s take a typical $300,000 house with 5% down. The mortgage is $1,500. A 2 family for $350,000 is $1,750 for the mortgage. With a tenant paying $1,200 that becomes $550 per month. Taxes aren’t much more nor is homeowner insurance. Even if heat isn’t separated, you can still bet on saving at least $500 per month. I’m not counting maintenance because every property has maintenance costs.
Here’s how monthly costs work out for both properties: The two family has $1,000 taxes, $200 insurance, $1,750 mortgage less $1,200 rental income for a $1,750 net cost. Contrast that with the single family house: $1,500 for mortgage, $835 for taxes, $100 for insurance for a net cost of $2,435. Living in your own two family works well as your first home purchase.
This link will show you how to start by investing in a two family home. It’s a highly competitive market but if you capture one, you’ll be so very glad you did. I’ve helped a lot of people buy a two family home. If you’d like to begin just call or text me at 201-741-8490 to set up a private consultation on this.