Walnut Street Finance Blog

Multi-Family Fix and Flips - 5 Reasons to Make Your Next Fix and Flip a Multi-Unit Property

Posted by Walnut Street Finance Team on Feb 14, 2020 8:30:00 AM

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The most recent housing forecasts indicates that Millennials are now hot to purchase single family homes in suburbs with easy access to amenities and cities. But a major wrinkle in this scenario is that even though demand is up, supply is too low to meet this huge group’s needs. Essentially, the suburbs can’t keep up.

So, apartment rentals are soaring with many saying that renting is more affordable than owning. Millennials are starting families, and even though they want to move into an adorable house, they’re renting to keep costs low. In fact, the areas in and around cities like Washington DC, are leading the charts when it comes to multi-family rentals.

As an experienced flipper, this is where you come in—consider making your next project a smaller multi-unit dwelling with two to four units. Here are five reasons why a multi-family fix and flip can be a savvy real estate investment.

Bigger Pool of Potential Buyers

When it comes to multi-unit dwellings, your buyers are both homeowners and investors. You might choose to sell the entire building to one individual or each unit individually. This could drive the price up, since you’re reaching a larger market.

Additionally, you may decide to rent out single units either during or after the renovation, which can help with cash flow and even generate income; as opposed to a single-family home, which generally needs to be completely empty during a flip (so no money is coming in).

Lower Competition

In the buyer’s market, you could be up against dozens of others to get a good deal on a potential single-family flip. Experienced builders are right in the mix with newbies. The idea of taking on the large overhaul of a multi-unit dwelling could be daunting, so they steer clear. Additionally, investors who have the money but don’t want to put out the effort to renovate could be looking for a turnkey purchase that they can rent out immediately.

More Sophisticated Business Deal

Speaking of that investor, this is likely not their first rodeo, so you’ll be dealing with a more level playing field when it comes to negotiations. They’re typically armed with high-level tools to help them determine if this purchase will generate good return on their investment. To ensure you’re going to make a good deal, be sure your project is in a desirable market where demand for residency is high. Leverage all of your flipper know-how from the get-go.

Economy of Scale

Essentially this means that you can save money because you’re working on a larger project. How does this work? As a real estate investor, you may have many roofs and plumbing systems to replace, but in a multi-unit dwelling, you have only one roof and one connected plumbing system. You can get better deals on scaled work with contractors. Additionally, if you have several single-family projects running at the same time, you’re balancing travel time between job sites and multiple financing contracts. One contract, one location, one project, higher return.

Bigger Payout

Ah yes, and now the sale. A multi-unit dwelling has a higher value than a single-family home. While an individual home buyer won’t pay more because rents are increasing, a multi-unit building buyer will. This investor will factor in rent increases into their valuation and pay a higher purchase price.

As renter demand increases (especially in desirable markets in Washington DC, Virginia, Maryland, North Carolina, South Carolina, Texas, Georgia just to name a few), the need for premium multi-family dwellings is on the rise.

Read to scale up on your next project? Give us a call.

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Topics: Real Estate Investing Tips

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