Although I started my real estate investing journey in single family housing, I knew that the end goal would be to own multiple multifamily assets and apartments. I did not know that normal people can participate in these investments, but when I got educated, I was hooked. Now that I am focusing on multifamily assets, I appreciate the benefits and can hardly look back to growing wealth one single family home at a time. Here are three of those wonderful advantages.
1️⃣ Cash Flow 💵
After buying and fixing up my first rental, I certainly did celebrate when we got that lease signed and received our first rental check. But man….that was a lot of work! Even though the project was only two months and it was a relatively simple rehab and leasing, my wife and I had just had our twin babies (numbers 3 and 4) and we appreciated family time. I knew that if I was going to do this real estate thing, we needed the same results with less effort or more results with the same effort. That is when I began my focus on multi-family.
I realized that rather than spending time finding, getting under contract and funding a ten homes, I could buy one ten-unit apartment building and achieve the same – no…better – results in much less time. One purchase could match the cash flow of ten homes! I was sold.
2️⃣ Valuation 📈
After having refinanced both of my single family rentals, I share this insight with passion. Residential real estate (four units or less) is not valued the same as commercial real estate (5 units or more). Whereas single family residences are valued upon the sale prices of comparable properties, commercial real estate is valued as a business, that is, based on income. Why is this important? In single family investments, you can only grow the value of your home to the extent that others in the neighborhood have paid for them recently. In multifamily investments, you valuation is theoretically limitless, as long as you continue to grow net operating income.
Let’s make it simple: let’s say I bought that ten-unit and grew rental income by $100 dollars per door. That is an increase to NOI of $12,000 annually. Let’s say that investors are willing to pay a cap rate of 6.5% for multi-families in this area. That increase in rent grew the value of the property by nearly $185k dollars! Try doing that with a single family without heavy lifting.
3️⃣ Efficiencies 💡
Finally, when you have a multifamily asset, you have natural efficiencies that happen from having all the tenants, doors and maintenance under one or a few roofs. That is one maintenance team, one local property for your property manager to manage, fewer roofs to replace and one income statement to manage. However, you are really receiving multiple streams of income since you have so many paying tenants. On that same note, one tenant who does not pay does not hurt the same way it does in a single family rental. Multifamily assets allow investors to better manage vacancy risk.
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Rodney Robinson II