What’s the Appeal?
Throughout recent years, the necessity for investing and planning for one’s future has become a hot topic of conversation. With the age of the internet fully upon us, information regarding stocks, cryptocurrency, and real estate investing is all easily attainable to novice and seasoned investors alike. Individual situations warrant different investing strategies, however, multi-family real estate investing yields a consistent and predictable return. There are many reasons to consider multi-family investing, but the ability to house hack, leveraged appreciation, and the local market trends over the past 50+ years are some of the most compelling.
House Hacking
House hacking is defined, in the real estate space, as the process of purchasing a multifamily property, living in one unit, and renting out the others, with the intention of having the paying tenant cover the mortgage. As our article specifically on house hacking details, financing options are also broadened when seeking out a property to house hack, because lenders count the projected rental income for the property as part of the borrower’s full income when applying for a loan. This is a great option for those in many different stages of their investment journey. For novice investors, this is an excellent opportunity to cut down on living expenses and start to build up equity in the property. In situations where investors have an existing portfolio, house hacking opens the options for owner occupied financing to temporarily live in the property for at least a year, then move out and repeat the process. In general, house hacking a multifamily property is a great path to take when considering investment strategies.
Leveraged Appreciation
Another unique quality of investing in multifamily real estate is the ability to take advantage of leveraged appreciation. As with many assets in the economic space, value increases monetarily over time. Same goes for real estate purchases. However, in this situation, buyers are able to take on the power of leverage and use some of the bank’s money to purchase a larger multifamily property.
Our article on leverage goes into further detail on the topic. For example, using the power of leverage opens up the option for a potential investor to buy a 4-unit property that hypothetically costs $1,000,000 with a 25% down payment ($250,000 down), rather than using that same $250,000 to buy a single family property in full. Leverage allows investors to then house hack, and receive rental income from the other 3 units (which goes into the buyer’s pocket, not the bank), rather than having no income from a single property paid in full.
The Market Trend
One of the fundamental reasons to invest in multifamily real estate is the long standing market trend of our area. In Southern California specifically, we have a diverse local economy and geographical constraints that create a high demand for property with low supply. This is a driving factor for appreciation over time.
At Buckingham Investments, we use our company’s over 50 years of experience to track the market. Through careful data analysis, we have found that multifamily price per square foot in SoCal has steadily appreciated on average 6.39% per year since 1965. Because we have documented the progression throughout such a long period of time, we are able to see that even through historic nationwide economic struggles, the market recovers and price per square foot increases. We have found that this trend is also a successful hedge against inflation.
The Reasons
Choosing multi-family real estate as an investment strategy comes with many benefits. Securing financial stability through cashflow is a consistent way to plan for the future. Purchasing a multifamily property opens many doors to further investment opportunities and can propel a buyer into a preferable financial position.
House hacking gives the investor an opportunity to cut down on living expenses. Leveraging the appreciation on a property allows for an investor to obtain a larger property and reap the benefits right away. Through the course of modern history, we have seen that the rate at which multifamily real estate price per square foot in SoCal has steadily increased. This allows us to predict that trend will most likely continue, so we think it is safe to assume that purchasing a multifamily property will withstand large scale economic issues.
