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Single-Family vs. Multifamily Real Estate Investing

Single-family vs. multifamily real estate investing is a question many real estate investors ask again and again. Certainly there are advantages to both.

Single-family vs. multifamily investing

When I started my real estate investing career about 30 years back, I thought buying single-family homes to rent was a great investment and would potentially secure my future wealth.

So I began buying single-family homes and learning the business that went with it, such as financing, upkeeping and the challenges that went with it. Since we bought properties in states scattered across the country, we chose to hire property management companies to manage them. The cash flows were erratic, but the tax benefits of owning and renting them was good. We just kept on purchasing and holding them for retirement.

But I have to confess, this year we sold all of them—except for a duplex that cash-flows very nicely even six years after we acquired it.

Single-family and multifamily homes are great for both seasoned investors and up-and-coming investors. As with any real estate deal, please do your due diligence to ensure the deal makes sense financially and fits your personal goals for your investing business.

“For those considering taking the plunge and investing in multifamily properties or single-family properties, it’s important to understand which investment vehicles do what,” writes Paul Esajian. “Deciding among single-family or multifamily properties is largely about personal preference and goals.”

Scattered houses vs. units all on one site

“When you invest in scattered houses, the operating expenses are higher and management is more intense than it would be for a multifamily rental property with all the units on one site,” Jerry Chautin writes.

“That’s why management companies charge more for scattered houses. It is difficult to monitor for unruly parties, pet damage and illegal activities such as making and selling methamphetamines,” he says.

As a matter of fact, we had that happen to us with a single-family rental home in inland California, where our property management company discovered a meth lab when the authorities cited us. We did get it all abated and re-rented the house, but it cost an awful lot of money in the process.

The capital required for unexpected issues tends to eat in to the cash flow very quickly. Those include—but are not limited to—having to buy a new boiler, air-conditioning replacement or tune up, garage malfunction, tree roots getting too close to the house and many other reasons.

3 advantages of single-family vs. multifamily

  1. Easier to get into, single smaller loan or cash deal
  2. Appreciation due to the neighborhood growth
  3. Easier to sell when needed

“While the market where the investment is located naturally influences all of these factors, there are a lot of potential advantages to investing in single-family rentals over multi-unit properties,” Andrew Bilen writes. “Particularly for individuals looking to build their portfolio over time, SFRs offer the option of acquiring units gradually, while the strengthening housing market and high demand for rentals help to minimize risk.”

3 advantages of multifamily vs. single-family

  1. Higher cash flows, more consistent also due to less effect of vacancy; if two tenants leave out of 20 units apartment, it’s still 90% occupied. Bigger pool of tenants; less risk!
  2. Bigger control over value, the value is based on the net income generated by the multifamily property. By adding value, the rents can be increased over time as the leases expire.
  3. Economies of scale. This is a big one. We only need to replace two or three roofs if need be for 20 units as compared to 20 separate roofs in the case of single-family homes. Maintenance requests can be handled easily in one location rather than scattered across an entire city or region.

Actually, there are lot more than just three advantages to investing in multifamily. So, after looking at so many ways to invest in real estate, I decided to choose only one path: multifamily investing.

I wholeheartedly encourage investors to choose this route, also. It made sense 10 years back and holds true today. It just makes all the sense in the world!

Even more advantages of multifamily investing

  1. Scalability is much easier in multifamily. Rather than purchasing individual properties and slowly growing your business one transaction at a time, in multifamily you are purchasing 20 units or 100 units in one transaction.
  2. Forcing appreciation in multifamily properties is easier compared to single-family housing. When you give your apartment building (or even a four-plex or eight-plex) more curb appeal, fix things in the property that make it more appealing as a living space for tenants, add a nice media center, a dog park or a nicer laundry room (these can be done in larger multifamily complexes; say 70 units or more) you will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating bigger and steadier cash flow, because your tenants will want to stay.
  3. More income in multifamily assets. We call these as bill-back utilities: The residents are billed for a portion of the water, trash, sewer and pest control charges out of the total master bill that the owner receives. Along with paying the monthly rent, residents pay a flat fee or a proportional amount each month for these services. Most of the multifamily properties are individually metered for electricity, and each resident pays that separately.
  4. Great tax breaks come with investing in multifamily properties. When you provide housing it’s a good thing. The government thinks so, too. The city in which the property is located likes the idea, because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it. As a result, you can gain all sorts of tax incentives (also known as tax breaks).
  5. You can depreciate all sorts of things in an apartment building or rental property. I really like this. You can depreciate some parts of the apartments on an accelerated depreciation schedule; it’s great to employ a CPA that specializes in this field. The savings are huge!!
  6. Multifamily properties hold their value. Once the property is rehabbed and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later (if you ever want to sell). You’ve put in place everything required to attract and retain tenants. That means steady cash flow, which is mighty appealing to investors.
  7. Investing in multifamily housing allows you to change lives. We provide great places for the residents to live. We provide jobs for so many staff members at the property along with many vendors. Most importantly through syndications, we help a lot of investors, who are doing well in their profession but don’t have the time for hands-on work with their multifamily properties.

Trends bode well for this strategy

As if you need any other incentive or assurance that multifamily investments will continue to be great, consider these trends:

  • 75 million Baby Boomers are headed into retirement.
  • Many of today’s apartment complexes may be converted to retirement communities in the future; the Baby Boomers are also downsizing.
  • Many Millennials aren’t buying homes.
  • It’s getting more expensive to build new apartment

Well, as you can see, I really am very bullish on investing in multifamily as compared to single-family. I sincerely hope that after reading this article, you will also look into diversifying and start investing in multifamily. The best game is doing syndications: Pooling money together in accordance with the SEC (Security and Exchange Commission) rules and regulations.

About the Author Vinney Chopra

Vinney Chopra is the Founder and CEO of Moneil Investment Group and President of Ideal Investments Group. Since coming to the United States more than 40 years ago - with only $7 in his pockets - he has built four successful businesses as well as his passions: a multifamily syndication academy and youth academy. With a bachelor's degree in mechanical engineering, he added a master's degree in business administration in marketing from The George Washington University, shifting his focus to marketing and motivation. He has been a professional fundraising consultant and motivational speaker for more than 35 years and also is a licensed real estate broker in California. Vinney and his wife started their real estate investments in 1983. He currently owns single-family homes and multifamily units in Texas, California, Atlanta, Arizona and India. People often call him “Mr. Enthusiasm” or “Mr. Smiles” for his positive attitude and commitment to bringing great value to everyone whose lives he touches.

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