Single-Family vs Multifamily Real Estate Investing

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single-family vs multifamily real estate investing

Single-family vs multifamily real estate investing? It is a question many real estate investors ask again and again. Certainly there are advantages to both. Starting out as a single-family investor, veteran multifamily investor Vinney Chopra shares his thoughts on this question.

By Vinney Chopra

When I started my real estate investing career about 30 years back, I thought buying single-family homes to rent was a great investment and would potentially secure my future wealth.

So I began buying single-family homes and learning the business that went with it, such as financing, upkeep and the challenges that went with it. Since they were scattered in many states we chose to hire property management companies to manage them. The cash flows were erratic but the tax benefits of owning and renting them was good.

We just kept on purchasing and holding them for retirement. But I have to confess this year we sold all of them except for a duplex we bought six years ago that cash flows very nicely.

Single-family and multifamily homes are great for both seasoned investors and up-and-coming investors. As with any real estate deal, please do your due diligence to ensure the deal makes sense financially and fits your personal goals for your investing business.

“For those considering taking the plunge and investing in multifamily properties or single-family properties, it’s important to understand which investment vehicles do what,” writes Paul Esajian. “Deciding among single-family or multifamily properties is largely about personal preference and goals.” So let's take a look at single-family vs multifamily real estate investing and which is the right path for you.

Scattered houses vs units all on one site

“When you invest in scattered houses, the operating expenses are higher and management is more intense than it would be for a multifamily rental property with all the units on one site,” Jerry Chautin writes.

“That’s why management companies charge more for scattered houses. It is difficult to monitor for unruly parties, pet damage and illegal activities such as making and selling methamphetamines,” he says.

As a matter of fact we had that happen to us in CA inland rental single family home, where our property management company discovered a meth lab when the authorities cited us. We did get it all abated and re rented the house but after spending a lot of money in the process. The unexpected Capital needs due to having to buy a new boiler, air conditioning replacement or tune up, garage malfunction, tree roots getting too close to the house and many other expenses tend to eat in to the cash flow very quickly

3 advantages of single-family vs multifamily real estate investing

  1. Easier to get into, single smaller loan or cash deal
  2. Appreciation due to the neighborhood growth
  3. Easier to sell when needed

“While the market where the investment is located naturally influences all of these factors, there are a lot of potential advantages to single-family vs multifamily real estate investing properties,” Andrew Bilen writes. ”Particularly for individuals looking to build their portfolio over time, Single-family vs multifamily real estate investing offers the option of acquiring units gradually, while the strengthening housing market and high demand for rentals help to minimize risk.”

3 advantages of multifamily vs single-family real estate investing

  1. Higher Cash Flows, more consistent also due to less effect of vacancy; if 2 tenants leave out of 20 units apartment, it’s still 90% occupied. Bigger pool of tenants; less risk!
  2. Bigger control over value, the value is based on the net Income the multifamily generates. By adding value the rents can be increased over time as the leases expire.
  3. Economies of scale. This is a big one. We only need to replace 2-3 roofs if need be for 20 units as compared to 20 roofs in case of single family homes. Maintenance requests can be handled easily in one location rather than

Single-family vs multifamily real estate investing

Photos of Vinney Chopra's apartment communities. Copyright Vinney Chopra.

7 more advantages of multifamily over single-family real estate investing

There are lot more than 3 advantages of multifamily vs. single-family investing.

It is why I chose multifamily and I encourage Investors to go this route if they can as it just makes all the sense in the world.

No. 1 - Scalability is much easier in multifamily

Rather than purchasing individual properties and slowly growing your business one transaction at a time, in multifamily, you are purchasing 20 units or 100 units in one transaction.

No. 2 - Forcing appreciation in multifamily is easier compared to single-family

You can give your apartment building (or even a 4-plex or 8-plex) more curb appeal. Fix things in the property that make it more appealing as a living space for tenants, such as adding a media center, a dog park or a nicer laundry room. These improvements can be done in larger multifamily complexes such as 70 units or more. You will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating steadier cash flow, because your tenants will want to stay.

No.3 - More income in multifamily

We call these as Bill back Utilities or (RUBS). The residents are billed for a portion of the water, trash, sewer and pest control charges out of the total master bill that the owner receives.

This way along with paying the monthly rents the residents pay a flat fee or a proportional amount each month for these services. Most of the multifamily properties are individually metered for electricity and each resident pays that separately by themselves.

No. 4 - Great tax breaks

There are great tax breaks that come with investing in multifamily. When you provide housing it’s a good thing. The government thinks so, too. The city in which the property is located likes the idea, because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it. As a result, you can gain all sorts of tax incentives.

No. 5 - You can depreciate

I really like this, you can depreciate some parts of the apartments on an accelerated depreciation schedule. It’s great to employ a CPA company that specializes in this field. The savings are huge!

No. 6- Multifamily properties hold their value

Once the property is rehabbed, and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later if you want to sell. You’ve put in place everything required to attract and retain tenants. That means steady cash flow, which is appealing to investors.

No. 7 - Investing in multifamily allows you to change lives

We provide great places for the residents to live in, we provide jobs for so many staff members at the property along with many vendors. Most importantly through syndications, we help a lot of Investors, who are doing well in their profession but don’t have the time to invest.

You can tell that I really am very bullish on investing in multifamily as compared to single- family. I sincerely hope that after reading this article, you will also look into diversifying and start investing in multifamily. The best game in my opinion is doing syndications- pooling money together in accordance with the SEC (Security and Exchange Commission) rules and regulations.

There are many indications that multifamily apartment investments will continue to be great as you evaluate whether single-family or multifamily real estate investing is best:

  • 75 million Baby Boomers are headed into retirement.
  • Many of today's apartment complexes may be converted to retirement communities in the future; the baby boomers are also downsizing.
  • Many millennials aren't buying homes.
  • It's getting more expensive to build new apartment units.

Summary: 

Single-family vs multifamily real estate investing is a question faced by many investors. I hope this discussion has helped you decide which course is best for your real estate investing future.

Resources:

Real Estate Investing: Single Family Houses Versus Multifamily Rentals. Which Is Better?

Investing In Multifamily Properties VS Single-Family Properties 

The Benefits of Single-Family Rentals vs. Multi-Family Properties

About the author:

Vinney Chopra is the Founder and CEO of Moneil Investment Group and President of Ideal Investments Group. His latest accomplishments include acquiring 12 multifamily assets in the last 28 months, worth $132 million. His last two syndications were sold out in just a few hours, and one in 36 hours raising $4.7 million and another one $6 million in eight hours. Between the two syndication companies he founded, Vinney’s team is controlling over $200 million worth of assets. He is a mechanical engineer. After entering USA with $7, he graduated from The George Washington University with Master’s in Business Administration in Marketing, he shifted his focus to marketing and motivation. He was a professional fundraising consultant and motivational speaker for more than 35 years with a wonderful private company. Vinney and his wife started their real estate investments in 1983. Many times, people call him “Mr. Enthusiasm” or “Mr. Smiles.” He likes to bring great value to everyone he comes in touch with. He likes to add value to everyone around him. You can also reach him at vinney@vinneychopra.com

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