What would you do if you had a bunch of money to invest right now? Would you use the funds for flipping houses — or investing in an apartment complex?
Many people think that flipping houses pays off because you can make a lot of money in one fell swoop.
However, investing that dough in an apartment deal is a smarter way to build and maintain wealth over time.
Let’s say you have your eyes on a house. After the down payment, you’ll still have a huge liability on your hands — not to mention taxes, insurance, and upkeep.
All for a single door.
Instead, you can take that money and invest it in a fund powered by multifamily real estate, which has multiple doors. This means more cash flow, more renters, and more money in your pocket every single month.
That’s just one way to see the power of investing in an apartment building instead of houses.
But what other aspects should you take into consideration as a beginner or even seasoned real estate investor?
Massive Benefits of Apartment Investing Over Flipping Houses
Monthly Cash Flow
You got a taste of the cash flow idea from the example above. However, here’s a full breakdown so you understand why it’s truly king.
Contrary to popular belief, you do not want to be liquid. Money that has nothing to do will find somewhere to go, from medical emergencies to unforeseen expenses.
And even if it doesn’t go out the window, it’s not creating wealth for you sitting in a bank.
In addition, cash goes down in value over time. It’s useless unless it’s used.
So, instead of saving it “for a rainy day”, why not invest it in assets that pay you every month?
CASH IS TRASH. CASH FLOW IS KING.
Whether or not you’re earning a bunch of money right now, the goal is to take your earned income and reduce it to zero by investing in the right kind of real estate.
This is the trick the super wealthy know about minimizing their tax bill.
To get a better idea of how this works, start with your total annual income. Depending on where you live, you could be giving up to half of that to the IRS.
With what you have left, another good chunk is likely going towards a bunch of necessary expenses.
Regardless of what amount you have left, here is how you should be thinking about it:
First rule — live on as little of this amount as possible.
Second rule — do not spend any earned income unnecessarily.
Third rule — invest it in a second business and/or a real property so you can sit back and get passive income.
Bear in mind that you should always consult your tax attorney, accountant, and so on. But their answer will probably follow the structure I just walked you through.
THE WEALTHY KNOW HOW TO PLAY THE TAX GAME.
On the cover of my bestselling book, “How to Create Wealth Investing in Real Estate“, you have the single most important formula that shows why multifamily is a game-changer:
Cash Flow x Units + Time = Appreciation
In other words, assets that increase in value over time (apartments) are the golden tickets for investors.
There are all sorts of factors that come into play here. Inflation. Interest rates. Homebuilding trends.
At the end of the day, they’re all wins for people in multifamily real estate. Investors can charge more for rent and likely have higher occupancy rates as people move away from buying homes.
REAL ASSETS APPRECIATE OVER TIME.
Renters on the Rise
Today, the United States has more renters than at any time in the past 50 years.
More than one-third of residents in America rent where they live, and the number is only getting higher.
While some would like to buy a home but can’t afford to, millennials tend to prefer renting. A trend among young people is that they don’t want to be locked in a mortgage.
It’s been going on for a long time in Europe. Now, it’s made its way across the pond. Saying that there’s a lot of potential in apartments right now would be an understatement.
AMERICA IS BECOMING A RENTERS NATION.
Honest Downsides of Investing in Single-Family Properties
In comparison to apartment investing, flipping houses has zero cash flow. You do the deal once, and it’s done.
Top it off with the ton of time and money you poured into improving the place, and it hardly seems worth all the effort.
Even if you were flipping multiple houses, selling them doesn’t happen overnight. Sure, you’ll cash in the big checks from time to time. But it won’t be on a monthly basis, with regular payouts.
Coupled with the decline in home-buying and even homebuilding, it stretches out turnaround even more.
Real estate is the only game where it’s safer to play big than it is to play small.
If you’re thinking of starting out slow, with one door, it’s going to bite you in the ass. Something as simple as losing a tenant could make your income plummet and liability skyrocket.
I fell into the same trap with my first deal.
Small property, one tenant. While they were there, I had a little cash flow to keep me going. But then came the day when they moved out — and I had nothing left. I lost money on the deal because I had zero cash flow, the whole mortgage to cover, and no sign of finding a new tenant anytime soon.
That’s what happens when you rely on one door.
On the other hand, if one person moves out of a 500-unit property, you won’t even feel it.
Apartments give you safety in numbers. Single-family homes tend to create more problems than they solve.
Time Sensitive and Consuming
Flipping houses isn’t an investment — it’s a full-time job. You’re still trading time for money and relying on market conditions to move. It is what it is.
With selling houses for profit, everything is time-sensitive. It’s a double-edged sword. You want to move fast and get paid quickly. But the faster you flip a home, the higher the government is going to tax you for it.
Even after a successful flip, you immediately have to seek out the next deal. You don’t get paid for searching.
Passive income is the key to making the most of the real estate industry.
People aren’t even building houses anymore like they used to.
Across the board, statistics point to an ongoing decline in new home construction. Not only are housing starts down — but so are completions.
In June 2022, 6.3% fewer homebuilding projects began compared to the same period last year. A little earlier, in March, 13% fewer houses were finished than the same month in 2021.
What does this mean? The supply matches the demand. Developers aren’t focusing on building more houses because they can’t sell them.
These are the hard truths that come with single-family “investing”.
So, Is Flipping Houses or Apartment Investing Worth It Overall?
When all is said and done, multifamily investing pays you to wait while reducing your tax bill.
With flipping houses, you put all your money, time, and energy into a one-time deal that you can’t write off.
Whatever investing vehicle you get into, you have to weigh the options to see what’s right for you.
For me, multifamily has been a successful action I’ve been taking for the past 30 years. And I plan to keep it that way for many more to come.
This content is intended to be used for educational and informational purposes only. You should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Grant Cardone’s opinions are not recommendations or endorsements from any of the Cardone Companies. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.
We are not attorneys, investment advisers, accountants, tax professionals or financial advisers and any of the content presented should not be taken as professional advice. We recommend seeking the advice of a financial professional before you invest, and we accept no liability whatsoever for any loss or damage you may incur. Any opinions expressed by any participants are not the opinion of CTTI or Grant Cardone and we do not endorse any of the data or opinions given by others.
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