I have just been reviewing my “closed escrows” log and I discovered an interesting fact: out of 39 escrows we have closed in the office this year, 18 of them have been multi-family residential properties! 46% – almost half – of the transactions we have done this year were multi-family. Of those 18, 6 of them were people who decided to live in one unit and rent the rest. And all of those 6 people except one were first time home buyers!
These are very interesting statistics. They tell me that many of you have taken notice of and acted upon the points that I have been “preaching” about multi-family real estate. Specifically: a) multi-family residential properties are an excellent investment – arguably the one of the best investment available today; and, b) that buying a duplex or some other type of small multi-family residential property and living in one of the units is one of the smartest ways to enter into home ownership.
I would dearly love to see more of you take this path to a viable financial life and I would love to help you do it. All of the people above, one way or another, came to the understanding that Real Estate does several things at once that virtually no other investment can do:
a) Real Estate gives a very strong annualized cash on cash return. The 18 clients that bought a multi-family residential property are enjoying – on average – approximately 11.5% cash on cash return. In other words, if they took, for example, $100,000 cash out of their pocket to buy their property (which would include down payment, closing costs and fix up costs (if there were any,)) they are seeing an average of $11,500 of cash flow each year! This, of course, is in addition to the $100,000 equity in the property.
b) Real Estate is an asset that appreciates, even while it simultaneously gives off positive cash flow. Real Estate is an asset, the value of which – historically – fluctuates, but always to the upside. In other words, each successive cycle has higher peaks and valleys than the previous one. For example, over a twenty year period regardless of the up and down swings of the market, one can expect an average increase in the value of the asset of about 5% . That accumulates handsomely over time. Meanwhile, it is also giving you a nice cash flow! And once the mortgage is paid off, the cash flow becomes delicious indeed.
c) You have the ability to personally make your asset appreciate in value. Many multi-family residential owners make capital improvements to their property: adding landscaping, making the property more efficient, bigger, more tenant friendly, or all the above. Some buyers don’t necessarily envision such improvements when they bought, but as time goes on they often decide to improve their asset on way or another – they find this to be both fun and profitable to do. Real Estate is one of the few investments that allows one to do this sort of thing. And each time you do, you increase the value of your property, usually far more than whatever it cost you to make the capital improvement.
In summary, if this is a ‘game’ you would like to play, or if you think you would like to know more about this, you can contact my office anytime and we can get together in person and talk it over. We’d love to chat with you and to help you understand and perhaps participate in the multi-family investment market – it’s a real winner. Looking forward to seeing you!