Wanna know the real deal when it comes to multifamily vs single-family investing? There’s only one winner in the game.
Most new real estate investors gravitate towards buying a single-family property (whether that’s one home or condo) and renting it out. And I get it, buying a single-family home feels less intimidating. After all, it’s more familiar.
But I promise you, by the end of this article, not only will you discover why multifamily is a much better option, but I’ll also prove to you that buying your first apartment building is not as hard as you might think.
So, let’s get started on why a multifamily investment is much better than buying a single-family house.
Multifamily vs single-family investing: why MF is the king of REI
Let’s keep it real, single-family investments are way too slow, require way too much work, and have way too much risk. Just consider these three points:
- Each investment requires a separate deal, due diligence, loan, and mortgage while equity slowly builds up.
- The margins are too small to hire a property management team to handle tenants’ midnight phone calls.
- if your tenant moves out, you’re basically screwed.
You see, I started exactly where most investors are. I bought a single-family home, rented it to a girl named Janet. My note was $500, the rent was $625, I made $125 a month. I thought I was a genius, and everything was great… until she moved out.
All of a sudden I had this house that I didn’t know how to rent because it was November. It’s getting ready to be cold and wet. And I knew that I’m not going to be able to find a renter anytime soon. That’s when I learned the most important lesson of my life.
The number of units equals my protection. And the more units I have, the more protection I get.
Aren’t multifamily investments prohibitively expensive?
The short answer is yes they are. A good apartment deal is typically in the millions. But before you get discouraged and start thinking, “this isn’t for me”, let me let you in on a hidden secret.
It’s called real-estate syndications. This is what makes investing in multifamily more accessible to the little guy.
The next time you see an apartment complex or an office complex, there’s a good chance that a group of individuals owns the building. An investment organizer, called a general partner (or syndicator), finds the building, operates it, and maintains it.
The general partner pitches the investment opportunity to limited partners (or passive investors). These partners don’t have anything to do with the building except to write the initial investment check and collect their monthly distributions and eventual profit when the building sells.
There’s only ONE downside to multifamily investing
So let’s go over to the cons side of multifamily investing. And yes there are cons, as much as I love multifamily. The biggest downside of multifamily is the lack of control, and if you’re like me, a control freak, then this could be a huge con for you.
You see, when you invest as a limited partner, you get a prospectus and a significant amount of financial detail upfront. However, because the general partner has the final say in the day-to-day operations, you don’t really have control over the day-to-day operations, what renovations to make, when to make them, etc.
Think of it as owning your very own company versus investing in a publicly-traded corporation. You have control when you have a business, but it’s riskier than when you invest in a large publicly-traded company. With a large company, you don’t have as much control, but the business leaders have much more expertise navigating the company successfully.
So long story short, while most investments are risky, multifamily, overall, is better. And my general tip for investing — whether it’s single-family or multifamily — is to know your numbers.
I have tons of videos on my YouTube channel to show you how to run numbers, how to analyze rentals, how to actually determine if a deal is a good deal.
Check out this one first and go from there: