A broad term, multifamily housing covers all properties with multiple families living in one building, from smaller condos and apartments to large-scale developments. For investors, such developments provide a pathway toward predictable passive rental earnings. Relatively easy to finance, rental properties can rapidly compound returns as they leverage economies of scale.
One key decision point is how much to charge in monthly rent. Many investors use the “one percent rule” in defining how much they need to charge to attain target revenues. This is a straightforward calculation for single-family homes: a $200,000 residence should bring in at least $2,000 monthly rent ($200,000 x .01).
For multifamily housing, the calculation is more complex, as the total target rental income is divided by the number of units. For example, a $10 million apartment complex should bring around $100,000 monthly. If there are 50 units in the building, this costs $2,000 per unit.
Remember that the one percent rule is a basic guideline for mapping the required cash flow. Estimated rental prices always consider the median rate for comparable rental units in the local area and amenities and features that make the property stand out and elevate renter demand.
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