When it comes to investing in real estate property, the debate of the day among both new and seasoned investors is whether single-family investments or multifamily investments are the most attractive.
Let’s dive in and a look at some of the pros and cons of both.
Single-family investments are popular primarily because they are the most widely known and seemingly the most widely available. It seems like a feasible thing for a lot of people to acquire an extra house or two.
While single-family homes DO take a lot of work and maintenance (middle of the night plumbing problems anyone?) they can also yield a high rate of return, especially in the long run.
A big downfall is that they are so dependent on market fluctuations, there is no reliable way to predict what your rate of return might be on a single-family investment. It is hard to plan for the future when there is no guaranteed rate of return on your investment.
Did I mention they are a lot of work?
It is true, you can hire a management company. A lot of investors take that option. Depending on the number of properties you own, but it can be cost-prohibitive leaving you to handle all the maintenance.
A lesser-known but highly attractive option for real estate investors is multifamily property such as an apartment complex.
The idea might sound overwhelming at first. I mean, if a single-family home is a lot of work, can you imagine how much work a 130 unit apartment building would be? Plus, doesn’t that require a lot of upfront capital?
Keep reading. There is a clever solution. This little-known strategy will make you money WITHOUT all the tedious daily maintenance.
Multifamily investments are less dependent on the fluctuations of the market. They have more predictable rates of return that usually land between 14% and 30%.
Take a look at these three additional advantages of multifamily properties. Then, as promised, I’m going to share a strategy with you that will help you quickly grow your portfolio and make money without all the hassle.
The Benefit of “Economy of Scale”
One of the best benefits of multifamily property investing is something called the “Economy of Scale.” Essentially, it means you can do more for less. Or said another way, when you scale your investment, you end up paying less for things on a larger scale that would cost more on a smaller scale.
Apartment buildings generally have a lower cost per unit and property management is usually more affordable than with a single-family home. Also, any improvements that you make will improve the value of all the units, not just one.
Let’s say you put in a pool. You are adding the value of a swimming pool to every unit in the community.
The economy of scale will work to your advantage in a number of other ways. For example, you will only need one insurance policy. You will only have to drive to one location rather than 20 separate locations for showings, inspections, and routine maintenance issues.
Leverage Your Investment
For those with ambitious investment goals, multifamily properties can help you take big leaps.
Let’s say you want to grow your real estate portfolio by 20 units. With single-family rental properties, you’d have to find 20 separate houses. That means 20 different sellers, 20 separate offers, 20 inspections, and probably 20 different mortgages.
If you invest in a 20-unit apartment building, you would achieve your portfolio goal with one transaction. Leveraging your investment allows you to do much more with a similar amount of money.
Yield a Higher Monthly Cash Flow
It takes less time, energy, and probably money to acquire a 50 unit apartment building than it does to acquire 50 single-family homes. It may take a little longer to find the right situation and it might require a little more work on the front end than one single-family property, but it does build in more efficiency and better ROI.
Investing is all about being efficient with your time and money. At some point, most investors will find that it only makes sense to graduate up to multifamily to fully optimize their cash, wealth building, and lives.
Unless you own multiple single-family properties, a multifamily investment will typically translate into higher rental income.
Multifamily property owners are far less likely to find themselves with zero rental income. If a tenant moves out of a single-family rental, it is 100% vacant. Alternatively, if a 20-unit apartment complex loses a tenant, it’s only 10% vacant. Even with the vacancy, you’ll still have 90% of your regular monthly rental income to cover the property’s mortgage and operating cost
Now for the insight you’ve been waiting for. This is the key for you to invest in a multifamily property without the hassle. Ready?
You will want to invest in multifamily real estate via an apartment syndication. That is a group of investors who pool their money in order to leverage it. Within the group, there are property experts and seasoned investors who vet each property before purchasing. They have a strict list of criteria that each property must meet in order to qualify for purchase.
Many single-family investors are graduating to multi-family because the math makes sense, and they are comfortable with the technical side. With an apartment syndication, there is very little downside.
Whether you’re just beginning with real estate investing or have a large property portfolio, choosing between a single-family property or a multifamily investment really comes down to your access to financing, budget, overall goals, and appetite for risk. You must also realize both options have their own risks and rewards, and both can be smart additions to your investment portfolio.