A multifamily rental property, also known as a multi-dwelling unit or MDU, is a single building or several buildings with multiple yet separate housing units. Common examples include apartment buildings, duplexes, triplexes, quadplexes, and mixed-use properties. HUD 223(f) loans are available for multifamily properties with 5+ units and can also be used for mixed-use properties, as long as commercial tenants do not occupy more than 25% of net rentable area and do not generate more than 20% of the project's effective gross income. For more information, please visit HUD 223(f) Loans and What is a Multifamily Rental?

The major benefit of investing in a multifamily rental property is the guarantee of reliable monthly cash flow from renters. Since multifamily properties are rented out to multiple individuals or families, there’s a reduced risk of vacancies — even if a tenant moves out, you can anticipate rental income from the remaining occupied units. Additionally, in a strong rental market, you will be able to fill vacancies fast, getting back to the initial, higher cash flow.

A huge benefit of buying a multifamily investment property early is the ability to take advantage of compounding returns. Over time, small amounts of money invested into multifamily properties can grow exponentially due to the power of compounding returns. This means that the earlier you start investing in multifamily, the more wealth you’ll have in the long run.

Investing in apartment buildings early can also help you diversify your investment portfolio. One of the main benefits of apartment investing is how relatively low risk the asset class is. If the market crashes, that may well wipe out your 401(k) — but odds are, your apartment buildings will be doing just fine.

When an investor is looking at residential properties, they are likely going to be looking for conventional mortgage loans that are similar to what would be used for a single-family home. If you aren’t going to be living in the home and you are just using it for an investment, conventional loans tend to be the only option available to you.

However, if you are going to be living in one of the units on the property, it becomes “owner-occupied,” which provides some more options. In those cases, you might also be able to use VA loans or FHA loans since you are technically still living on the property.

For example, if you were buying a triplex, and you live in one of the units while renting out the other two, you would be able to choose from those other loan options. This is because they will generally require that the owner lives in the home that is being financed.

With these loans, you will find that they work the same as a regular loan for a single-family property. This means the down payments are going to be about the same.

The risks associated with investing in a multifamily rental property include construction costs that have risen dramatically over the past few years, construction delays due to supply chain issues, and the possibility that the renovation work may not be enough to get the desired investment outcome. According to Multifamily.loans, buyers should be able to come with around a 20% downpayment, depending on the real estate market or the size of the property.

Investing in multifamily properties comes with several tax incentives. It’s possible to deduct operating expenses and maintenance costs, including management fees, insurance, and marketing costs, or any legal and professional services, such as property management companies. Additionally, investors should be aware of potential capital gains taxes when investing in commercial or multifamily property. When it comes to real estate taxes, the more you know, the more money you can save.

For more information, please see the following sources:

• The Pros and Cons of Multifamily Investing
• Capital Gains Taxes for Multifamily and Commercial Real Estate Investors

Owning a multifamily rental property comes with a variety of legal requirements. Depending on the type of property, you may need to comply with local zoning laws, building codes, and other regulations. Additionally, if the property is subsidized, you may need to comply with Section 504 of the Rehabilitation Act of 1973. This requires that 5% of all units be disability accessible units, while 2% of the units need to accessible for the visually or hearing impaired. Common areas also need to be disability accessible for properties built before 1982 and 1988 for USDA and HUD-financed properties, respectively. For more information, please see this article.