Multifamily is not really commercial real estate [Video]

When it comes to real estate investments, multifamily is not typically considered commercial real estate. However, it offers some of the same benefits and can open up new financial opportunities for savvy investors.We explain why in this article.

What is multifamily real estate?

Multifamily real estate is a type of real estate that refers to property that is used as housing for multiple families. This type of property can include anything from apartment buildings to condominiums. Multifamily real estate can be a great investment option for those looking to purchase property that can provide them with a steady income stream.

Benefits investing in multifamily real estate

With the right property and management, multifamily real estate can provide good returns and long-term stability. Here are just a few of the benefits of investing in multifamily real estate: 

Increased Cash Flow

One of the primary benefits of multifamily real estate is increased cash flow. By renting multiple units to tenants, you can generate more rental income than you would with a single-family home. This additional income can help you pay off your loan and provide additional income that can be used for other investments or expenses. 

Tax benefits

Investing in multifamily properties also comes with certain tax benefits. Multifamily property owners may be able to claim deductions on their taxes that are not available to single-family homeowners, depending on the local tax laws.

Appreciation potential

The value of real estate has increased over time in the past decades and provided owners with revaluation gains when they decide to sell or refinance the property. Multifamily properties have the added benefit of spreading any appreciation across multiple units, creating more versatile appreciation potential. 

Long-term wealth creation

By owning and managing a property over a period of years, you gain valuable knowledge and experience that can help you make sound investments down the road. And with the extra cash flow from your tenants, you’ll have more money available for future investments or retirement savings. 

Differences between multifamily and commercial real estate

There are a number of differences between multifamily and commercial real estate, and it’s important to understand these differences to become a successful investor.

Multifamily real estate is typically used for residential purposes, such as apartment buildings or condominiums. 

Commercial real estate, on the other hand, can be used for either residential or commercial purposes. It can be used for things like office buildings, retail stores, warehouses, or hotels.

Another important difference between multifamily and commercial real estate is the financing options available. Multifamily properties are often financed through private lenders or and commercial loans. Commercial real estate, on the other hand, can be financed through a variety of sources, including banks, private investors, and even self-financing by the owner.

In addition, there are some laws that are specific to each type of property. For example, some states require you to be licensed to manage multifamily properties. Other states require you to be licensed to manage commercial properties. It’s important to check all legal and permitting issues before you start a project.

Types of commercial real estate

The world of commercial real estate is vast, and offers a large array of various types of properties to invest in. Below, we discuss three popular types of commercial real estate: triple net office buildings, retail, and strip malls and industrial. 

Retail Space

Retail Space is ideal for businesses searching for visibility in a high-traffic area. Whether one is looking for a single storefront or a multi-level shopping center, retail space offers great exposure to potential customers. Tenants usually pay a percentage of their gross sales or a flat rent for the property.

Strip Malls and Industrial properties

Strip malls and industrial properties are two other common types of commercial real estate that offer different benefits to tenants. Strip malls offer tenants access to consumers in an enclosed shopping center, while industrial properties offer large warehouse and manufacturing spaces that can accommodate heavy equipment or large vehicles. Depending on the type of business, one may be more appropriate than the other. 

Single, Double- and Triple Net Office Buildings

Single, double and triple net office buildings are a great option for companies looking for a large space with flexibility and control. Triple net office buildings are the most common type of property of the three, requiring tenants to pay a base rent plus all operating expenses, such as real estate taxes, maintenance costs and insurance premiums. This type of arrangement provides landlords with a steady stream of income with little risk. In addition, tenants benefit from the ability to customize their office space to meet their specific needs.

Types of lending

When it comes to commercial real estate, multifamily is just like residential — except when it comes to financing. A commercial loan for a multifamily property takes into account its value, net worth and liquidity over the debt-to-income ratio of potential borrowers. 

Multifamily real estate works on commercial loans

Commercial lenders are much more interested in the long-term prospects of the property than its current income-generating ability. The higher the value of the property, the net worth of the borrower and the liquidity of their assets, the more competitive terms they will be able to obtain for their financing package. 

A multifamily commercial loan can offer several advantages over traditional residential loan products, including: 

Lower interest rates: Commercial loans typically have lower interest rates than residential loans because lenders consider them less risky than residential mortgages. This can save money in the long run, resulting in significant savings on payments over time. 

More flexible terms: Commercial loans also tend to have more flexible repayment terms than residential mortgages. They usually have longer terms, extended amortization periods and other features that can make them more affordable for buyers who don’t qualify for conventional mortgages. 

Higher loan limits: Commercial loans often come with higher maximum loan amounts than residential mortgages, allowing buyers to purchase larger properties or multiple units at once if they so desire. 

As a result, commercial loans tend to be much more favorable for multifamily investments than traditional mortgage products because they emphasize value, net worth and liquidity over debt-to-income ratios. This makes them an attractive option for investors looking to purchase multifamily properties and take advantage of their potential returns.

How real-estate syndication works

Real estate syndication applies to all types of assets, not just commercial real estate. In fact, the concept of syndication can be applied to any asset that requires a large amount of capital to purchase. 

The process involves pooling money from multiple investors to purchase a larger asset or business than would be possible for a single investor. It provides access to larger deals with higher potential returns. This makes syndication an attractive option for those seeking investments outside of their traditional scope.

Syndication also allows investors to spread risk and reduce volatility. By involving multiple investors, losses are shared among all parties, making the risk more manageable. In addition, by combining resources with other investors, you gain access to new investment opportunities that may not otherwise have been available. 

The syndication structure is designed to protect both the investor and the general partner who manages the asset or property. The general partner has a fiduciary responsibility to make decisions that are in the best interest of all investors and is compensated for this role through fees or a share of profits. 

We focus on the syndication process, irrelevant of the underlying asset

When it comes to real estate investing, it is important to understand the specific legal requirements of each type of investment to ensure that the investor is properly protected and that the funds raised are used in accordance with the law. 

Those looking to invest in commercial real estate need to be aware of laws regarding zoning, taxes, tenants’ rights and other regulations that must be followed. The same is true for residential and multifamily real estate investments. 

In addition, there may be specific regulations related to rental properties or development projects that must be followed to ensure a successful investment. 

Therefore, it is important for investors to work with experienced professionals who can ensure compliance with applicable laws and regulations when working on any type of real estate investment. 

10 Types of properties suitable for syndication deals 

Syndication deals are a great way to get involved in the real estate market without putting a lot of money down. But what types of properties are best suited for syndication deals?

1. Residential properties come in a wealth of sizes, styles, and purposes. Single-family homes are a great choice for those looking for the benefits of homeownership. Condos and townhomes offer a more affordable option with the same sense of privacy and ownership. Multifamily homes are an excellent choice for those who want to invest in a residential property.
2. Commercial properties are an important part of the economy and provide endless opportunities for business owners and entrepreneurs. Office buildings are great for almost any business, with plenty of space for employees and operations. Retail spaces offer attractive locations for businesses to draw customers from the location and offer shoppers convenient access to everyday needs. There are also industrial properties, health-care properties, hotels, and warehouses.
3. Industrial properties provide a variety of uses from factories and mining sites to manufacturing and warehousing.
4. Land comes in many forms, and can often be used as opportunity to develop something great. Undeveloped land can remain as is but can also be used to make room for residential, commercial and industrial properties. Agricultural properties are often used to produce products and feed the local community, while vacant lots provide investors with an opportunity to build and create something new.
5. Mixed-use properties combine residential, commercial, and industrial elements to offer a unique living space. This type of building is ideal for those looking to create a space where they can both work and live, while providing space to a variety of different functions.
6. Special-purpose properties often have more specific usage than residential, commercial and industrial properties. Hospitality and leisure, medical, education and religious properties are examples of special-purpose properties, which can be specialized for specific use.  
7. Multifamily properties are buildings or complexes that contain multiple dwellings, or housing units, that are typically occupied by more than one family. These dwellings can range from small apartments to large townhouses, and can be found in both urban and suburban areas.
8. Short-term rentals have become increasingly popular in recent years, with the prevalence of sites like Airbnb. These properties are typically owned by individuals and are rented out on a short-term basis to travelers who are looking for a good place to stay while they explore the surrounding area.
9. Vacation homes are similar to timeshares in that they offer families a place to stay while they take a break from their regular lives, though they are typically not shared between multiple people. It is possible to buy or rent vacation homes in a variety of locations, depending on the needs of the family.
10. Self-storage facilities are a great option for both residential and commercial customers who need to keep their items safe and secure. These facilities offer a variety of storage sizes and options and can be a great choice for those who need more space than what their current home can provide.

Conclusion

The multifamily sector is a great way to diversify your portfolio and participate in the commercial real estate market. Syndication allows investors to pool their resources and invest in larger projects with greater potential returns while minimizing their risk. With experienced sponsors at the helm, multifamily real estate can offer investors a unique and attractive opportunity not available in other forms of commercial real estate. If you’re looking for an investment that offers long-term stability, income and upside potential, multifamily syndication may be the right choice for you.