Single family vs multifamily investments, which is better? As many of you are aware, my journey began with investing in single family homes but that was a big mistake. As you’ll discover, the multifamily investments are far better than single family.
Starting Out with Single-Family Rentals
Like many aspiring investors, I started with a vision of creating passive income, providing a better life for my son, and then transitioning to a full-time career in real estate investing. However, I soon faced common challenges that many single-family investors face.
Limited Cashflow: Despite a growing portfolio of single-family rentals, there just wasn’t enough cash flow to support my financial goals. Vacancies and turnover cost ate into my profits because when a tenant moves out of a single-family rental, the property becomes 100% vacant until a new tenant is found. During this period, I had no income to cover expenses and turnover cost and I found myself in a cycle of financial struggle and never getting ahead.
Property Management Challenges: Owning single-family homes meant managing properties spread across different locations. Each property had its own set of needs, from maintenance to tenant management. Expenses for repairs and upgrades added up quickly and managing finances for multiple properties became overwhelming for me.
Tax Limitations: As an engineer with a decent salary, I couldn’t take advantage of the tax benefits of owning rental properties to maximize my investments.
The combination of these factors had me caught in a cycle and it seemed I would NEVER reach my goal of financial independence. However, during a discussion with my mentor about the challenges I faced, I discovered the solution: multifamily investing. So, I engrossed myself in the multifamily investing business, read everything I could, talked to whomever I could talk to, and here’s what I discovered.
From Single Family to Multifamily Investing
In comparison to single-family rentals, multifamily investments offer consistent cashflow, significant tax write-offs, and the ability to scale efficiently.
Stable Cashflow: Multifamily properties have multiple units. Even if you don’t have 100% occupancy, some tenants will always be renting, providing a more stable income to cover expenses. For example, with a single-family rental, when a tenant moves out you are 100% vacant. On the other hand, with a 5-unit multifamily property, if one tenant moves out you are still 80% occupied and you still have 80% of your rental income coming in. So compared to my single family rentals, multifamily provides a more reliable source of income.
Efficient/Scale Faster: By consolidating multiple units under one roof, I was able centralized expenses, management and accounting to be more efficient.
Tax Advantages: As my multifamily portfolio grew, I was able to quit my job and dedicate all my time and resources to my investment properties. As a result, I qualified as a real estate professional per the IRS. This was a huge game changer for me because this designation gave me unlimited tax write-offs. To learn more about the benefits of achieving real estate professional status (per the IRS) and all the significant tax advantages of multifamily investing, check out these trainings:
Why Reach Real Estate Professional Status
3 Tax Advantages of Commercial Real Estate
Life Goals Achieved!
Investing in multifamily properties led to financial independence, allowing me to leave my conventional job and secure my family’s financial future. More importantly, this financial freedom allowed me to spend quality time with my son. However, some of you may be wondering how I was able to fund my multifamily investments without a W2 job. Well, I used creative financing strategies and I could still qualify for multifamily loans because I had income producing properties. You see, multifamily loans focus on property performance:
- Net Operating Income (NOI): Can the property generate enough income to cover the loan payments?
- Location: The neighborhood’s stability and growth potential.
- Buyer: While your credit matters, the property’s financials take precedence.
So, banks primarily qualify the property itself before considering the buyer. Then once my commercial loans were above a million dollars, they became nonrecourse, meaning there is no personal guarantee required. If the property defaults, the lender can only seize the property itself, not your personal assets. In contrast, single-family loans emphasize the borrower’s credit and are typically recourse loans, meaning if you default, the lender can pursue your personal assets. To learn more about financing multifamily investments, check out these trainings:
Creative Financing Commercial Real Estate
Upgrade Your Single-Family to Multifamily
Maybe you have a similar story, invested in single family rentals and not getting ahead. Maybe you’re struggling to pay high maintenance costs and running ragged with too many responsibilities. Or are you just not getting any of the amazing tax breaks of real estate investing that should be available for you? If you identify with the challenges of single-family rentals and want to upgrade your portfolio to multifamily, there’s no better time than now. But where do you start?
Getting Started: 4 Unit vs 5 Unit?
Many of our students who transition from single-family to multifamily begin with smaller multifamily properties. Now, you could start with a 4 unit, but remember, a 4-unit is considered residential even though it is multifamily, meaning it will fall under the same guidelines as a triplex, duplex or single-family property. On the other hand, a 5-unit is a commercial property, which means you can force the appreciation by raising the rents and increasing the NOI. Both a 4 unit and a 5 unit multifamily are a great place to get you started in multifamily real estate investing.
In fact, we have a training that compares both called 4 vs 5 Unit Multifamily, Which is Better? We also have an in-depth comparison of the pros and cons of residential and commercial real estate investing, called Residential vs Commercial Real Estate Investing. Both these videos will give you more training to help you decide which is best for you.
Financing: How do I Fund It?
You next question might be, “How do I fund it? How can I transition if I don’t have a lot of money or equity in my single-family rental?” Don’t let that stop you! We teach our students creative financing techniques that don’t involve banks, such as seller financing and the Master Lease Agreement and we can teach you too. Find out more here: Creative Financing Commercial Real Estate
Case Study: 18 Unit Apartment with $2MM Value Add
If you’re wondering what it looks like to transition from single-family to multifamily investing, you can learn from successful investors like Bruce and Renee. When they came to us they had 8 single family rentals, but it was taking too long for them to achieve enough cash flow and net worth to accomplish their goal of becoming full-time investors. Like me, they were stuck, and they weren’t making any progress. They knew multifamily investing was the answer, but they needed guidance and mentorship. That’s when they joined our mentorship program and traded their single-family investments for an 18-unit apartment building. Discover how they did it in their case study here: Why Invest in Apartments Over Single-Family Rentals
Every Successful Multifamily Real Estate Investor Has a Mentor
Every successful multifamily real estate investor has a mentor. Get your mentor here: Commercial Property Advisors Protege Program
If you have any questions, post a comment below or text PETER to 833-942-4516.
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