As an investor, you can choose from a myriad of purchases, including property. Real estate, as we have discussed, brings numerous benefits. If you have decided to purchase an investment property, you’ll have even more questions to ponder. For example, is it still a good time to invest in multiunit properties?
While everyone’s decision will be different, here are seven reasons why multiunit properties remain a solid investment.
7 Reasons Why It’s Still a Good Time to Invest in Multiunit Properties
Note: This article is for general information and entertainment only and should not be considered investment advice of any kind. Before making any decision, consult with a qualified professional.
1. Sense of Security, Stability
When times are uncertain, real estate can provide a stable, secure, reliable investment. It may not be as exciting as emerging markets and futuristic tech companies, but investing in multiunit properties provides a steady foundation for a portfolio.
Real estate is consistently one of the best options for investors for a variety of reasons. For one it has a well-established track record for value growth. For centuries (millennia even), the price of land has steadily grown. While nothing can guarantee success, this record of growth is a strong indication that your property will grow in value after you make the purchase.
Investing can be worrisome. With government disputes, economic uncertainty, the looming dangers of COVID, and an ever-changing marketplace, multiunit properties create a stable, reliable income. This can ease much of the worry that results from investing in other areas.
2. Consistent Performance
This reason to invest in multiunit properties is highly connected to #1. (In fact, they could be rolled into the same benefit.) Real estate is not, in most cases, subject to the rapid ups and downs of the market; it’s far more consistent. (This consistency creates a sense of stability and security, which is the #1 benefit.)
According to Equity Multiple, a real-estate technology company, the stock market has “exhibited higher volatility than private real estate.” They state that over a 20-year period, the stock market experienced “volatility nearly four times greater than private real estate.”
Real estate is not as vulnerable to the ups and downs of the marketplace, making multiunit properties a consistent performer.
3. Interest Rates Remain Extremely Low But Could Increase Soon
The interest on your loan depends on many factors that go far beyond the Federal Reserve. However, the “Fed” creates a baseline of interest that creates a foundation for mortgage rates; when the Fed rate is low, you have a better chance at getting a low mortgage rate.
Currently, interest rates remain low; data shows that interest rates are currently well below historical rates, although there has been a slight trend upward. Average 30-year mortgage rates were, according to Macro Trends, 3.11% in December of 2021. Although they rose throughout 2021, they remain well below the averages for previous years.
Interest on a multiunit property, especially one purchased solely as an investment, can be higher. But if you want a low rate, it’s still a great time to use a loan.
4. Conforming Limits for Multiunit Properties (2-4 Units) Have Risen
While you can’t purchase a large apartment complex with a conforming loan (for that you need a commercial loan), you can use conforming loans to buy a property with up to four units.
The baseline for a two-unit property has been lifted from $702,000 to $828,700, an increase of over $128,000. The limit for a three unit has gone from $848,500 to $1,001,650, while the limit for a four-unit property has gone from $1,054,500 to $1,244,850.
These increases are even larger in high-priced areas like San Diego county. In our county, the limit for a two-unit, as an example, has gone from $964,300 to $1,126,250.
Although there may be residency requirements (you may have to live in one of the units for a certain period), this allows you to purchase your own home while also investing in a multiunit property. All the while, you can enjoy the benefits of a conforming loan, which could mean a lower downpayment, easier credit requirements, or a better interest rate on your multiunit property.
5. Prices Expected to Rise
Prices for property have risen sharply since the start of the pandemic. With these price increases, some may feel it’s not a great time to purchase a multiunit property. That would, according to this thinking, go against the time-honored investment wisdom that says you should always “buy low.”
Prices have risen; as an investor you can’t change that. But they will likely continue to rise; they certainly won’t go down. Real estate, historically, trends upward, with greater consistency (in many cases) than other investments. It’s hard enough to “time the market” with stocks, it’s virtually impossible with real estate.
To put it directly, if you wait, prices for a multiunit property will only be higher in the future.
6. Rental Properties Can Hedge Against Inflation
Inflation, which is the devaluation of a dollar compared to goods and services, is an issue that impacts everyone. From low-income consumers to high-net-worth investors, when things cost more, it’s creates numerous challenges.
If your money sits in savings, it can essentially lose value when inflation occurs. But because real estate grows in value (most of the time), it can help you keep up with inflation. When you invest in real estate, you protect your financial future against the decreasing value of a hard-earned dollar.
7. Leverage and Ease the Need for Housing Demand
The demand for housing, which is driven by many factors, is expected to continue. With a multiunit property of up to four units, you have the chance to take advantage of this demand; you’ll have more units to offer tenants, which means a greater chance to profit from the housing demand.
But profit doesn’t have to be your only motivation. As an owner of a multiunit property, you can offer high-quality housing to individuals and families who need it. Knowing that you are offering a source of comfort and safety, at a fair price, is a noble and honest motivation for purchasing a multiunit property.
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