SS173: From Single-Family to Multifamily Real Estate: Why You Should Make the Switch

  • April 7, 2024
  • Rokon Ahmed
  • Strategy Saturday
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SS173 From Single-Family to Multifamily Real Estate Why You Should Make the Switch

There are several benefits to transitioning from single-family rental to multifamily. In this episode, Charles explores the benefits and why investors should consider it.

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Talking Points:

• If you have heard the show before, you know I am a huge proponent of multifamily real estate, and I want to break down why I think investors should make the switch from single-family rentals to multifamily properties.
• 1. Consistent cash flow/risk mitigation. When I started investing in multifamily real estate, one of the immediate benefits I saw was the ability to cover the property’s expenses when there were vacancies. I started investing in 3-family properties; if 2 units were paying, that was usually enough to cover all monthly expenses for that property. It also made non-paying tenants, evictions, move-outs, make-ready, and move-ins much less stressful since you spread that cost over multiple units while still having steady cash flow coming in. In addition, every unit you purchase (especially if it is near your other properties) makes your cash flow even more consistent.
• 2. Economies of scale. The more units you have in one location, the lower the operating costs are per apartment. If you have 10 units under 1 roof, your handyman will have a much easier time managing those 10 units. Usually, the units will have all of the same fixtures; extra replacements will be stored in a storage area onsite or the basement, and there is no travel time wasted between properties. The property owner can negotiate better deals with vendors and contractors. For example, any annual maintenance (like furnace tune-ups or an AC checkup) will be much less per unit on 10 units when compared to that same contractor performing the maintenance at 10 single-family houses.
• 3. Property Management. Property management becomes easier and less expensive per unit with every unit you have at a property. Furthermore, different levels of property managers focus on properties of different sizes. Typically, the larger your properties, the more professional managers you will attract to manage them. Suppose you own a couple of single-family houses. In that case, the normal property manager will usually be a real estate agent who does property management on the side, and you will usually pay a 10% property management fee. Compare that to owning a 10–20-unit property, where you can hire a property manager who only manages apartment complexes and will charge around 7%.
• 4. Financing Options. Commercial multifamily properties (properties with 5 or more units) have more financing options when compared to 1–4-unit properties. Commercial multifamily property owners can choose the financing solution that best fits their needs, with some options being non-recourse, meaning that the owner is not personally signing on the loan. Moreover, these loans are based more on the property’s performance and less on the property owner.
• 5. Forced Appreciation. Forced appreciation is a major benefit of commercial multifamily properties. Since commercial real estate is valued off the net operating income, owners have more control over the value of their property when compared to a single-family home, where the value is mainly based on market comparables. Commercial multifamily property owners can perform property renovations and management efficiencies to their property to boost their NOI and ultimately increase the value of their property. Another benefit of multifamily assets.
• Now, one counterargument I could make where you could achieve some of the benefits of multifamily properties by still purchasing single-family houses would be if you were buying single-family rentals at a deep discount within close proximity of each other, you could have a scalable business model that was easy to manage. I say a deep discount since it is usually much easier to buy single-family homes at deep discounts when compared to multifamily properties. This would lower your cost basis and improve the rental cash flow.
• The first portfolio of small multifamily I built was located within a ½ mile radius of each other. That made management much easier, and it allowed me to focus.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing from single family to multi-family real estate, why you should make the switch.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
If you’ve heard the show before, you know I’m a huge proponent of multi-family real estate, and I wanna break down why I think investors should make the switch from single family rentals to multi-family properties.

Charles:
Number one is consistent cash flow and risk mitigation. When I started investing in multifamily real estate, one of the immediate benefits I saw was the ability to cover the property’s expenses when there were vacancies. I started investing in three family properties, and if two units were paying, that was usually enough to cover all monthly expenses for that property. It also made non-paying tenants evictions move outs, make ready and move-ins much less stressful since you spread that cost over multiple units while still having steady cash flow coming in. In addition, every unit you purchase, especially if it is near your other properties, makes your cash flow even more consistent. Number two is economies of scale. Now the more units you have in one location, the lower the operating costs are per apartment. If you have 10 units under one roof, your handyman will have a much easier time managing those 10 units.

Charles:
Usually the units will have a lot of the same fixtures. Extra replacements will be stored in the storage area on site or in the basement, and there is no travel time wasted between properties. The property owner can now negotiate better deals with vendors and contractors. For example, any annual maintenance like furnace, tuneups, or AC checkup will be much less per unit on 10 units when compared to that same contractor performing the maintenance at 10 single family houses. Number three is property management. Now property management becomes easier and less expensive per unit with every unit you have at a property. Furthermore, different levels of property managers focus on properties of different sizes. Typically, the larger your properties, the more professional the management you are will that you’ll track to manage them. Suppose you own a couple of single family houses, in that case, the normal property manager will usually be a real estate agent who does property management on the side, and you’ll usually pay you know, a rate of 10% for, for property management fee.

Charles:
Now, compare that to owning a 10 to 20 unit property where you can hire a property manager who manages apartment complexes all day long and will charge around say, 7%, and that will only go down with the more units you buy, the more complexes. Number four is financing options. Commercial multifamily properties, properties with five or more units will have more financing options when compared to one to four unit properties. Commercial multifamily properties can choose the financing solution that best fits their needs with some options being non-recourse, meaning that the owner is not personally signing on the loan. Moreover, these loans are based more on the property’s performance and less on the property owner and their income. Number five is forced appreciation. Forced depreciation is a major benefit of commercial multifamily properties. Since commercial real estate is valued off the net operating income, the owners have more control over the value of their property when compared to a single family home where the value is mainly based on market comparables, commercial multi-family properties and commercial properties alike, the owners can perform property renovations and management efficiencies to their property to boost the NOI and ultimately increase the value of their property.

Charles:
Another benefit of multifamily assets. Now, one counter argument I could make where you could achieve, achieve some of the benefits of multifamily properties by still purchasing single family houses would be if you were buying single family houses at a deep discount within close proximity of each other, and you could have a scalable business model that was easy to manage. Now, I say a deep discount since it is usually much easier to buy single family homes at deep discounts when compared to multifamily properties, this would lower your cost basis and improve the rental cash flow. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments on potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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