Is Multi-family Real Estate Investing Right For Me?

One of the top 3 questions people ask me when it comes to real estate investing is, “Which is a better investment - single family homes or multi-family investments?”

Like, if I had a dollar for every time I was asked this question, I wouldn’t need to invest in #realestate anymore. I would build a mansion with extra rooms to store all my dollars, and then wander the halls at night and count them all again, just for fun.?

As with most perplexing questions of our time, the answer is wholly unsatisfying but true:

It depends.?

It depends on your goals, your risk tolerance and your expertise in real estate. Let’s dive a little deeper and answer these questions. First, a definition.

“Multi-family” properties are simply defined as a property with more than one unit. This can range from a simple 2-unit duplex, up to a hundred-unit high-rise apartment complex. But a duplex has a lot more in common with a single-family investing strategy, so for purposes of our evaluation, we’re talking about quad-plexes (4-unit properties) and higher today.

I see four major benefits to pursuing a #multifamilyrealestate investment strategy.?

Income Stability

For a single-family investment strategy, if your tenant loses their job and is unable to pay, you’re still on the hook for your mortgage payment, with no off-setting revenue. Now you should have a contingency fund to cover that shortfall, but that’s a topic for another day. In a multi-family investment strategy, you’re diluting your risk by sharing it among all of the doors (or tenants) in the property. The odds of every tenant in your property being unable to pay one month are almost non-existent. And if it happens, we may want to take another look at your screening process….which brings me to the next pro.?

Outsourcing Property Management?

When pursuing a single-family investment strategy, it’s often more financially viable to manage the properties on your own. While this can potentially increase cash flow in the short term, it can also create enormous time demands and emotional baggage around maintenance and repairs. With a multi-family strategy, the cash flow allows for - even encourages - hiring a property manager to screen tenants, respond to service calls, maintain the property, and generally protect your investment. This is the ideal scenario for investors still working a 9-5 job who are looking to diversify their investment strategy and improve returns. Finding a trusted property management team is key.?

Scalability

If you’ve ever worked in a start-up or with a fellow entrepreneur, you know scalability is a key measure of long-term success. A multi-family investment strategy creates an easier path to scalability. If your goal is to get to 20 units, you can do that over 10 years. Buying 2 houses a year, paying for 2 inspections, appraisals, closing costs and repairs. Or, you could save for your down payment over the next 3 years and buy a 20-unit property. All of the time and effort you put into the deal is completed 7 years ahead of schedule, and likely with less financial investment than you think. Which brings us to our last benefit.

Funding Options

Any investment opportunity presents a range of funding options. But I have found that multi-family investments - particularly apartment complexes or mixed-use properties - give investors a broader range of options for funding and partnership. Whether that’s a business loan from a bank, a business partnership with a friend or colleague, or a real estate syndication. Quite literally, buying multiple doors at once presents multiple doors of opportunity for funding.?

Questions to Ask

Am I interested in real estate investing specifically, or in a general investment for a return? If your goal is returns, multi-family may be your best bet. If you want to get into the weeds with your investment, screen every tenant and fix every leaky faucet - single family is where you’ll shine!

Do I want to be involved in the day-to-day management of the business, or create passive income? Similar to the first question, if you’re working full-time and your real estate investment is a side-hustle, scalability will be a challenge if you plan to pursue single-family homes and manage them yourself. If your goal is to create passive income, multi-family investing with a property manager is your best path to that goal. Consider a company that specializes in multi-family unit management and has a track record of success like SVN Second Story Real Estate Management, now working across the Southeast.

What are my funding options? If you begin pursuing multi-family investments, it’s a good idea to begin talking to your banker and networking with other funding institutions and investors to determine your options for making a larger investment. Keep real estate syndication is on your radar.

Who do I know who’s already doing this well? This is a question I ask myself often, and it’s served me well on my real estate journey. Find people who are already succeeding with a multi-family strategy, and find out what they did to succeed. A local role model is always most helpful, as they may be able to share information on trusted property managers, funders, fellow investors - and those to steer clear of. For more information consider joining a real estate investing club or check out some online forums.