Investing in multifamily real estate offers
opportunities for passive income and portfolio
diversification, but when it comes to choosing
between newer and older buildings, newer
constructions hold the upper hand.
CEO AND CO-FOUNDER - CIGNATURE REALTY
Investing in multifamily real estate can be an excellent way to diversify your investment portfolio and generate passive income. As the name implies, multifamily properties are properties that have multiple housing units, either in one build or several within a complex. For example, duplexes, townhomes, condominiums, and apartments are all considered to be multifamily properties in most states.
When it comes to investing in multifamily properties, many investors wonder whether they should focus on newer or older buildings. While there are advantages and disadvantages to both options, buying newer buildings is generally the better choice.
One of the most significant advantages of investing in newer multifamily buildings is that they are less likely to need costly repairs, whereas older buildings may require significant renovations to address outdated plumbing, electrical systems, roofing, and other issues. These repairs can be expensive and time-consuming, and they can cut into your profits.
Newer buildings are also often built with modern materials and construction techniques, making them more durable and less likely to need major repairs, which offers their infrastructure greater stability. They may also be more energy-efficient, which can save you money on utilities and maintenance costs over time.
The point of investing in property is to create a passive income, so constantly having to fix something in the building significantly reduces the ROI you will receive from your investment. With newer builds, you invest more money upfront, but save money throughout the lifespan of the property with fewer costly repairs.
Another advantage of investing in newer multifamily buildings is that they often attract more tenants. People generally prefer to live in newer buildings that are equipped with modern amenities and features which can include fitness centers, swimming pools, community spaces, and smart home technology. Newer buildings may also have updated security features, which can be a significant draw for tenants.
By investing in newer buildings, you can attract a wider pool of potential tenants to help keep your units occupied and generate steady passive income. In addition, newer buildings may command higher rental rates, which can boost your overall ROI.
Newer multifamily buildings require less maintenance than older builds since they are often designed with low-maintenance materials and features, which can save you time and money on upkeep. For example, newer buildings may have vinyl or metal siding, which requires less maintenance than wood siding in the long run.
In addition, newer buildings may be equipped with more advanced HVAC systems and appliances that are not only more energy-efficient but also have a longer lifespan. This can help you save money on maintenance costs over time, further improving your cash flow and ROI.
When you invest in multifamily real estate, it's essential to have a clear understanding of your expenses. One of the advantages of investing in newer multifamily buildings is that they have more predictable expenses, which can make it easier to budget and plan for expenses.
In addition, newer buildings may come with warranties or guarantees for certain features, such as roofing or appliances. This can provide you with added protection and peace of mind as a property owner.
Investing in newer multifamily buildings can pay off in droves when it comes time to sell. Newer buildings generally have a higher resale value than older buildings because they are often in better condition and have more modern features, which can be attractive to potential buyers.
In addition, newer buildings may be located in more desirable areas, which can also contribute to a higher resale value. By investing in newer buildings, you can potentially generate more profit when you decide to sell your property.
Investing in multifamily real estate is an excellent way to generate passive income and diversify your investment portfolio. While there are advantages and disadvantages to both newer and older multifamily buildings, buying newer buildings is the better choice.
Lazer Sternhell, CEO and co-founder of Cignature Realty, has over 25 years of real estate experience. Cignature Realty is the leader in Manhattan multifamily and mixed-use apartment building sales. Its mission is to provide deal execution support.