Six accepted "Facts" about real estate investing that are actually "Myths"

Whether you are new to investing or you are an experienced investor, there are always “facts” that many investors believe to be true but are actually “myths”. Maybe it starts out as “my friends buddy told me” or “I heard it from an investor”. In actuality, it does not matter how the myth starts. The key is to identify these myths and find the truth! Let’s look at six accepted facts about real estate investing that are actually myths! 

Myth #1: Investing in Multifamily Real Estate is Only for those with Big Bank Accounts

Well hold on, this is not necessarily true. Yes, there is typically a higher price tag to purchase an apartment complex versus a single-family home and that extra zero or three can be daunting. Did you know you can invest in a multifamily real estate syndication deal for as little as $25,000 and even lower in some cases? So you see, you do not need millions of dollars to invest in multifamily real estate and this is just one of many ways to enjoy passive income and all the benefits that go along with owning a multifamily property. 

Bonus:  Did you know that there are a bunch of tax benefits that go along with investing in real estate? Two primary tax benefits are that passive income from your investment is taxed at a lower rate than earned income and when the property is sold, your profits are taxed at capital gains rates which are lower than income tax rates. 

There are many other benefits to investing in multifamily real estate, but the bottom line is you do not need a lot of money to start your real estate investing career. My advice is to find an experienced, and qualified, sponsor with a successful track record to invest with

Myth #2: Multifamily Real estate is Harder to Finance than Single Family houses

Contrary to popular belief, it is actually easier to get a loan on a multifamily property than a single-family home.  Wait, what…how is it easier to get a loan on a $2,000,000 property than a $100,000 property? Well, because lenders view multifamily properties as a “less risky”, “safer”, and more “secure” investment than single-family homes. Lenders take into account the sponsors track record of deals, the properties income, and the ability of the sponsors/key principles net-worth and liquidity.

In single-home investment loans, the lender looks at your credit score, your income, and does not account for the income of the property when determining if they will loan to you or not. 

Myth #3: It is easy to find Investors if you have a great deal

Remember the iconic line from “Field of Dreams”, the 1989 film about an Iowa corn farmer who hears a voice telling him, “If you build it, he will come.” Every time I hear someone say, “if you have a good deal the investor will come to you,” it reminds me of this movie line and the fact that the farmer heard a “VOICE” in his head telling him to build a baseball diamond… 

The simple truth is, most investors don’t flock to deals…especially if they do not know the sponsor! It is up to the sponsor to build up a successful track record and build solid relationships with potential investors. Even then raising money for a particular deal is not a given; most investors do not have an unlimited amount of funds to invest, and you may approach them when they have just invested in another deal and they won’t have the means to invest in your deal at that time. 

Myth #4: Multifamily Real Estate Investing is Too Risky

Any type of investing you do, even investing in the stock market, comes with risk. Multifamily real estate investing is no different.  Not all multifamily deals come with the same level of risk, for example, a Class A luxury apartment building might have somewhat lower returns than a Class C value add property, but is also less susceptible to the markets ups and down. 

You need to know where your comfort level is on the spectrum of risk. If you are looking to build wealth as quickly as possible then you might be more comfortable with a riskier investment. If you are closer to retirement and are interested in a steady stream of income to supplement your retirement income then you should look for less risky deals to invest in. 

Myth #5: It Costs more to Maintain a Multifamily Property than a Single-Family Property

Well duh! Of course multifamily properties require more costs and expenses than buying a single-family investment property. We are talking about purchasing a 20, 40, 100+ unit complex and the cost for managing and maintaining that property is going to be much more than that single family home.  But, you need to remember that while owning that multifamily property will cost you more per year for the whole property, the cost per housing unit is lower than that of a single-family home! This is even the case when you include management into the costs. Having a professional property management company managing the day to day not only saves your sanity but potentially also saves you money. These managers typically have access to vendors who give them a reduced rate for materials and labor that you won’t and these savings are passed along to you as the owner. 

Bonus: A good professional property management company will track your income on the property, expenses, collect invoices from vendors which makes your life a whole lot easier when it comes to filing your taxes. 

Myth #6: Multifamily Properties are Harder to Rent out than Single-Family

Yes, renting out multiple units can take a lot of time and effort from any property owner and keeping multiple units 100% occupied all the time is difficult.  While many renters would prefer to rent out a single-family home for its comfort and privacy, especially families with young children, not all renters can afford to do this. There are those people that do not want to maintain a yard or such a large living space and prefer to live in an apartment. As the younger generations are abstaining from purchasing homes and baby boomers are retiring, the demand for housing in multifamily properties will most likely remain high, if not go up. 

Let’s look at the following scenario. If your only rental property is a single-family home and your tenant moves out you are now at 0% occupancy, still paying the mortgage.  Even if you miss only one months’ worth of rent you might still be at a negative cash flow for the year or just break even.  Instead, say you own an apartment complex, even if you have 2-3 tenants move out and it takes you a couple of weeks to a couple of months to rent them all back out, you are still collecting rent from your other tenants, that is paying the mortgage and has positive cash flow at the same time. This is why investing in multifamily properties is a safer and more secure investment.

The benefits derived from working with an experienced and knowledgeable sponsor are not a myth. Just as you have devoted time, money, and a lot of effort to your career, so have they. They will save you time, money and a whole lot of sleepless nights when you choose to work with them and that is a FACT! 

One Investment Away...

If you are interested in learning more about passively investing in multifamily investments, contact Colby Bowers at [email protected]

About the Author 

Colby is the co-founder of Veteran Pride Investment Group, a commercial real estate investing company specializing in apartment buildings and mobile home parks throughout the United States. At Veteran Pride Investment Group, Colby helps investors grow their wealth by investing alongside him in his exclusive deals they usually do not have access to. Veteran Pride Investment Group is a Veteran Owned and operated business that supports veteran and first responder charities by donating 20 percent of their profits to these organizations. 

www.veteranpride.org