Multi-Family are the Best Real Estate Investments

Conventional Real Estate Investing is the most straightforward, simple way to invest in real estate and build actual wealth available to the average person. 

The only catch is that conventional real estate investing requires a 25% down payment. There are plenty of people that will tell you that you can get around this with creative financing or by bringing in partners, which is true, but complicates the deal substantially.


Read More - 90 Days to Your 1st Rental Property


 

Assuming you have or will trade up another property with enough equity for the 25% down payment, the big question now is what property will you purchase?  The advice is simple:

Buy an Apartment Building

Multi-Family properties are better long term investments as compared to single family properties for 2 primary reasons: Economies of Scale and the Value is based on NOI.small multifamily property apartment

Economies of Scale

In microeconomicseconomies of scale are the cost advantages that enterprises obtain due to their scale of operation (typically measured by amount of output produced), with cost per unit of output decreasing with increasing scale. At the basis of economies of scale there may be technical, statistical, organizational or related factors to the degree of market control. (Wikipedia)

In real estate, economies of scale means the numbers work better. 

man male investor thinking

Here are a few examples:

- Vacancy: If you have a 8 unit property, each unit rents for $1200/month, your potential income is $9,600.  If one unit is vacant for one month, you still make $8,400 that month.  If you have a single family property, that rents for $2,500/month, your potential income is $2,500.  If one unit is vacant for one month, you make $0.  But your mortgage is still due.
- Vendor Relations: When your property offers regular work for vendors, including property management and maintenance workers, the cost of these services will be less. Property management industry standard is usually around 7% income for multi-family management, so in the example above management would be ~$672/mo or $8,064 / year.  That is $1,008 per year per unit.  On a single family, industry standard is around 8% per month PLUS ~75% rent for a lease up. Again using the figures from above, that would be ~$1,875 + $200/mo = $4,275/year (assuming a turn over each year). 
It just doesn't pencil from the investor point of view; If you originally lived in the house and are building up your rental portfolio or are implementing the BRRRR Investment strategy, it's a different situation, but there is just no reason to buy a single family property as a conventional real estate investment.
Value is based on NOI

When you are evaluating properties to invest in, multi-family properties are going to make more financial Deal analyzer template call to action bb french real estate investingsense far more often than single family property.

The reason is because you are competing with other real estate investors, not emotional home buyers.  A home buyer is not typically looking at the long term financial implications of the acquisition (unless they are working with me), but investors are.  

Since you are a conventional real estate investor, you are evaluating the current and performa income, the current and performa expenses, and making your offer off the Net Operating Income.  Even if you make a high offer, the bank is going to value the property off the NOI.  There is really very little to debate, the property is worth what it's worth based off the current and performa NOI, that's it.  

This is true on your acquisition and also on your re-sale, so if you manage the property well, or hire a component team to manage the property well, you will maximize the asset's value in preparation for a 1031 Exchange to repeat the process. 

Analyzing Conventional Real Estate Investments

 

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