Multifamily real estate investing is a popular form of real estate investing because it’s an asset class that most people can understand.

Each multifamily unit needs to have a functioning kitchen, bathroom, and some combination of bedrooms and living space. Rentals typically run on annual leases using straightforward paperwork.

In short, for more investors, buying multifamily property is a lot less complicated than investing in office space, retail, hotels and other asset classes.

It’s a great way to get started with commercial real estate investing and is a fantastic option for anyone looking to diversify their real estate investment portfolio.

Multifamily property is a type of real estate property that contains two or more units within the same building. These units can be similar in shape or size, or not.

This type of property can accommodate multiple occupants, either as individuals or families. A good example of a multifamily property is an apartment building.

The smallest scale multifamily properties are duplexes with two units. Triplexes and four-plexes are the next step up, having three and four units each, respectively.

Larger multifamily properties, those with five or more units, start to fall into the “commercial real estate” category. Properties with 5+ units qualify for a different type of financing.

Multifamily property can continue to scale to include hundreds, even thousands, of units. Large apartment complexes, for example, and high-rise apartment buildings are other examples of multifamily property. Sometimes multifamily property will cater to a specific demographic, such as students or seniors, while others are open to all types of tenants.

Below are some of the benefits that make this a strong investment vehicle.

1. Cash Flow. One of the reasons investors like multifamily property is for the cash flow it generates each month. Rents are predictable and in strong markets, units can be turned over easily and re-leased to ensure steady cash flow year in and year out.  The cash flow advantage is one of the main reasons why real estate investors should consider investing in multifamily properties. You can expect a high occupancy rate on your property, especially when in a strategic location. Eventually, this can translate to higher monthly revenue.

2. Passive Income. Investing in multi-family real estate is a great way to generate additional income without lifting a finger. It is easy to hire a property manager who will take on the day-to-day responsibilities for you. This is particularly attractive to those who have little experience owning or managing rental property.

3. Forced Appreciation. Single-family homes are usually purchased based on the sales approach. The “comps” in the market usually drive the value of the property. In contrast, multifamily properties are purchased using the income approach. Why is this distinction so important? You have much more control in a multifamily property to “force” the appreciation of the property by driving up the net operating income (NOI). Those who have a long-term investment horizon will find that typically, multifamily real estate appreciates over time and are more resilient to economic downturns.

4. Lowered Risk. Multifamily property is considered a relatively “safe” investment compared to other real estate asset classes. That’s because even during an economic downturn, people need somewhere to live. In fact, during a recession, many people find themselves forced to sell their homes and move into rental housing, instead. It can take a while for people to rebuild their credit after an economic downturn, which creates prolonged demand for multifamily property. Compare this to office or retail properties, for example, in which demand almost always decreases when the economy slows.

5. Spreading Risk Over More Units. If you own a single-family home and it goes vacant for two months, guess who will be paying the mortgage? YOU. But if you own a 6-plex and two tenants decide to vacate, you still have four rents coming in to cover the expenses. Multifamily properties allow the investor to limit their downside risk by having multiple tenants pay the expenses. Once again, the investment lends itself to the investor model, where the revenue stream will be sufficient to pay the expenses and generate cash flow at the end of the month.

6. Less Work to Buy / Easier to Manage. Many investors do not take into account the expense and time it takes to acquire 25 single-family homes as opposed to one 25-unit complex. Even if you bundled several homes together, you are still looking at multiple closings, not to mention visiting all of these homes before you put in an offer. With multifamily, you visit one property, negotiate with one owner, come to terms with that single owner, and perform one closing. This reason alone will allow you to focus on your company and grow the business, not to mention the time and expense you will save.

It is easier to manage 20 units under one roof than it is to handle 20 different rental units spread throughout the city. This is a practical reason that makes multifamily property investment makes a lot of sense. Also, it is a type of investment that would justify hiring a property manager. If you own just one property or a rental unit, hiring a property manager might not make sense. But with a multifamily property, you will be able to optimize the investment on a property manager.

7. Fewer Loans. One benefit to owning multifamily property is that it can typically be purchased with one straight-forward, traditional bank loan. Compare purchasing a 10-unit apartment building to buying ten single-family rental properties. The former will require one loan, whereas the latter will require ten individual loans. These loans can be difficult to track and manage over time. Other types of real estate often require multiple loan products that mature on different time horizons, which can be confusing for a first-time investor.

8. Insurance Simplicity. Insurance, like financing, is relatively simple when buying multifamily property (at least, relative to other real estate types). Insurance policies will become more complicated as the number of units grows, particularly if there are certain amenities (e.g., a rooftop terrace or outdoor pool) that could increase an owner’s liability. That said, insurance companies tend to be well-versed in multifamily assets and will be able to put together a policy with ease. As you grow your multifamily portfolio, it is also easy to get a single “blanket” policy to cover all of your assets under the same provider.

9. Scalability. Multifamily appeals to investors given the ability to scale up quickly and grow a portfolio. Investors can grow their portfolio two units at a time, if they so choose. But it’s much harder to scale a this way. It is much easier to hire a maintenance crew and managers to help run our business. At first, we employed a resident manager. But as our portfolio grew rapidly, we were able to hire full-time employees to provide the services to our property.

10. Tax Benefits. Multi-family real estate is highly tax advantaged. Most investors use a mortgage to finance the property. They can then take a deduction for mortgage interest paid during that fiscal year, which tends to be higher in the first years of ownership as the loan begins to amortize. Multifamily properties can then be depreciated over a 27.5-year period, even if the property technically appreciates in value. Depreciation can be used to offset a significant portion of the rental income collected each year, making this a highly attractive asset class for investors of all kinds.

11. Diversity of Product Types. While we refer to “multifamily” as a single type of real estate asset class, the sector is actually huge and offers investors the opportunity to buy several different product types. For example, you can invest in small, neighborhood-oriented duplexes or triplexes. You can choose newly-renovated properties or opt for a more opportunistic investment, such as buying a value-add apartment building.

You can invest in private, off-campus student housing or 55+ retirement communities targeted toward seniors. You can buy a multi-family property with the intention of renting on a traditional, year-long lease or you can invest in one that you then list on Airbnb or another short-term rental platform. Multifamily provides tremendous optionality given the many product types that make up this sector.

12. Multiple Investment Mechanisms. Another reason people are drawn to multifamily property is because of the myriad of ways in which to invest. You can purchase a multifamily building individually, or you can partner with others. You can invest via a syndication, which allows you to reap the benefits while taking on a more passive role in the partnership. You can invest in a multifamily fund that has broad reach to invest in multifamily properties across the country, thereby diversifying the location of your holdings (and therefore, providing some risk mitigation). Alternatively, you can invest via a real estate investment trust (REIT), which preserves liquidity as REIT shares can be purchased and sold as easily as stocks. These are just a few of the ways to invest in multifamily property, which is why the asset class is so attractive to such a diverse group of investors.

13. Less Competition. Most investors are focused on fixing and flipping or acquiring single-family home rentals. This increased competition ultimately leads to margins being driven down, and profits suffer as a result. In the multifamily space, many investors possess a limiting belief that it is difficult to buy an apartment complex, and hesitate to explore the possibilities of multifamily properties.

14. Build Your Investment Portfolio Faster. Finally, if you are serious about real estate investing, this type of investment can boost your portfolio quickly. After all, it is easier to acquire one real estate property with 20 units than it is to acquire 20 single-family rental units.