Why Invest in Multi-Family Developments?

By Michelle Clardie on 02/07/2021.
Reviewed by Dan Gatsby .
Multi-family real estate investing is consistently popular among savvy real estate investors thanks to the high profitability, built-in diversification, and low risk compared to other real estate investments.

But is it the right fit for you? And how can you capitalize on the demand for properties with multiple units? 

There are several multi-family real estate investing strategies. You could purchase an existing multi-unit building, rehab it, and flip it for a profit. You could buy an existing building, renovate it, and lease it up at higher rental rates than it was earning previously. Or you could take advantage of the Gatsby Investment model: purchase a single-family property, demolish the structure, replace it with a multi-family building, and sell the newly developed property.

The case against buy-and-hold multi-family investing

The main benefits of the buy-and-hold investment strategy are the on-going cash flows as tenants pay rent each month, plus the value increase at the property appreciates. But the buy-and-hold strategy comes with a few downsides as well. 

With the buy-and-hold model, your investment capital is tied up in the asset for many years, potentially causing you to miss out on time-sensitive investment opportunities. And the longer you hold a real estate asset, the greater the risk of something going seriously wrong (perhaps tenants fail to pay rent, or the property gets damaged). Even if nothing goes wrong, the property will naturally require more maintenance as it ages. With the real estate market moving so fast, today’s investors are looking to get in, get out, and move on to the next opportunity. That’s why we offer the opportunity for investors to take part in developing and selling multi-family real estate investments.

The benefits of multi-family investing through the develop-and-sell strategy  

Here are five key reasons why you should invest in real estate through a develop-and-sell investment strategy.

1. Multi-family homes help combat the housing shortage.

Developing new multi-family housing is an important component of battling the housing shortage, particularly in high-demand areas like Southern California. 

As real estate investors, our primary goal is to maximize profits. But we also want to be a part of the solution to serious housing issues like the current housing shortage. Taking a single-family lot, tearing down the existing structure, and replacing it with a new-construction multi-dwelling home increases the housing supply. 

This housing help is highly unlikely to create so many units that the price of real estate dips to become more affordable for Southern California residents. But if we can convert enough single-family residences, perhaps we can keep the growth steady and sustainable. The last thing we want as investors is to over-limit the housing supply and create a local real estate bubble. Building more real estate developments that increase housing density can help us avoid that situation.  

2. Multi-family real estate investing is profitable thanks to high demand.

While the housing shortage is certainly a driving factor in the high demand for this type of property, the increase in renters also plays a significant role in increasing demand.

As property values have outpaced income growth, Millennials have largely been priced out of the housing market. As of 2019, only 43.3% of millennials owned a home (compared to 67.0% of Gen X and 77.1% of Baby Boomers). Millennial homeownership is increasing as millennials age into higher-paying positions in their careers, but the rate is far slower than in previous generations. 

But it’s not just that millennials can’t afford high-value homes. Many Millennials also struggle with excessive debt due to student loans, as well as credit issues because of easy access to credit cards as young adults. And many millennials prefer renting because they appreciate the convenience and the ability to move easily. 

All this demand makes multi-family real estate investing highly profitable. The demand increases the property values and ensures a quick sale so investors can move into their next deal quickly. 

The income is also passive when you have a real estate investment company managing the project. Passive income isn’t just for buy-and-holds. Today’s investors can have a real estate investment company handle the entire development and sale project from start to finish. You make the investment, then you go about your business until your profits are ready for you. 

3. The acquisition and construction cost-per-unit is favorable.

Further contributing to the profitability of multi-family properties is the favorable cost-per-unit.  

Consider the cost of building a single-family home. You buy the lot, hire the architect and the construction team, pay for building materials, and hire the designer for the finishes. 

Now, consider the cost of building a multi-unit home. There’s no additional cost for the lot. The architect, construction team, and designer may charge a bit more, but not as much as if they were doing separate projects. And while the cost of materials will naturally be more expensive, the cost-per-unit is less than it would be for many single-family homes.

The lower cost-per-unit ultimately makes the project more accessible and more profitable.

4. Construction can be completed more quickly than on multiple single-family homes.

Just like a multi-family project enjoys a lower cost-per-unit than single-family homes, it also enjoys a faster build time than several single-family homes.

Scouting ideal locations for projects naturally takes time, so the fewer locations developers need to purchase, the better. It can also be difficult to juggle schedules for all the professionals involved in building a home, so when you can schedule the team for one project, it’s a lot more efficient than scheduling the team for many single dwellings on different timelines.

The quick turnaround works in the investor’s favor. As mentioned, many of today’s investors want to get in and get out quickly so they can move on to the next investment. 

5. Multi-family real estate investing is flexible.

We understand that most investors don’t have the time, experience, or connections to efficiently develop real estate projects, particularly in cases where rezoning is required. That’s why Gatsby Investment offers investors the opportunity to buy into development deals for a much lower upfront cost and with no prior experience. 

With this flexible investment strategy, you get to choose from several upcoming projects based on the timeframe, estimated ROI, and minimum investment amount that works for you.

Take advantage of the many benefits of investing in a multi-family home without having to actively manage the project or tie up your funds for a long period of time.

The best place for a multi-family investment

Naturally, the best place for investment is a market in which there is high demand for this type of home. 

Southern California is a prime area for multi-family real estate investing. In Los Angeles, San Diego, and Orange County, the housing shortage has driven up the demand for multi-unit property. 

How can I invest in multi-family housing?

You could always purchase a property on your own and personally manage the development and sale of the project. But that investment model doesn’t make sense for most investors. There is simply too much room for error when trying to manage a project of this scope on your own. 

Instead, savvy investors are partnering with real estate investment companies, like Gatsby Investment, to invest in multi-family housing. Gatsby has a proven track record of profitable multi-unit real estate investment deals. Our team of experts will handle every detail, including:

  • Market research
  • Location scouting
  • Buying the property (including handling title and escrow) 
  • Obtaining permits
  • Identifying building materials
  • Interior and architectural design
  • Managing the construction team
  • Staging
  • Selling the property
  • Distributing the profits   

To take advantage of Gatsby’s full-service investment strategy, you need to be an accredited investor. You can get verified as an accredited investor online through a third-party service called Verify Investor (you’ll see the “Accredited Application” option in the “Account” tab when you sign up for your free Gatsby Investment account). 

Once you’ve been verified as an accredited investor, you’ll be able to choose your investment from Gatsby’s offerings. Simply use the online investment cart system to add investments to your cart and check out when you’re ready. Invest in as many projects as you’d like.

You’ll receive wire transfer instructions for each project, and once your transfer has been received, your account will be updated to reflect the active investment. You get to track your investment through each step of the process!

Start investing today with Gatsby Investment

Gatsby’s experienced team of professionals has perfected this develop-and-sell multi-family investment strategy over the last several years. You can leverage our market knowledge, experience, skill, and connections to make the most of your real estate investment funds. Our projects have returned annualized yields of over 20% to our investors over comparatively short terms. 

With the market this hot, you can’t afford to wait. Sign-up with Gatsby Investment and start the investment process today!

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