1. Multifamily Works Well in Most Markets
Perhaps most importantly, multifamily works in my market.
Not every market is going to be conducive to every kind of investing, and maybe it’s not good in your area. (Though I know people succeeding at multifamily in almost every market in America, so I think some people just don’t look hard enough.)
In my market, I can find duplexes, triplexes, fourplexes, and more just on the MLS, and they actually make financial sense. In other words, they are going to cash flow.
2. One Loan, Multiple Units
Raise your hand please if you like the loan application process…
Anyone?
Anyone?
Bueller?
That’s what I thought. Trying to get a loan is a long, arduous process that no one enjoys. But it is a necessary evil for most real estate investors — which is another reason why I enjoy multifamily so much: there are fewer loans to obtain!
If I were to go out and buy 20 single family homes in the next few years, those are 20 loan applications I need to fill out. Twenty financials I need to prepare. Twenty “yes’s” I need to hear from the underwriting department.
Exhausting, no?
Instead, I can buy a 20 unit apartment building and get just one loan. One application. One set of financials.
I only need to get one “yes.”
3. One Insurance Policy
I hate insurance.
I understand the importance of it, but the insurance world is just so cumbersome and frustrating. A good amount of my wife’s administrative time is spent just dealing with insurance.
We have boxes and boxes of paperwork with nothing but insurance documents.
This policy got canceled.
This policy automatically increased.
This policy changed, and now they only cover part of what they did before.
This policy had our address wrong.
Etc.
You get the picture.
When I invest in a multifamily property, I have ONE insurance policy on it. It’s so much easier to keep track of and manage.
4. Math Over Emotion
When investing in multifamily units, I am able to separate out the emotion from the transaction much more easily than a single family home.
Multifamily is all about the math. The numbers! This is especially true on the larger multifamily properties (5+ units) where the value is actually based on the income, rather than what the Joneses paid last spring.
And that leads me to #5…
5. Income Valuation
Multifamily units with more than 5 units are not valued the same way as single family properties. And I love that.
If I were to sell you my single family home, the appraiser would look at a few other single family homes that were similar and base their appraisal on what those other homes sold for.
But… that’s just so subjective!
Commercial properties, on the other hand, are valued based on the return on investment they give their owners. After all, it’s not easy to compare a 24-unit apartment building with another 24-unit apartment building with the exact same returns because you’ll never find that similar property. Commercial investments are just too different.
Instead, we rely on the income to base value on. If these 3 properties that recently sold gave the owner a 10% return on investment, then this one should also. (This is a really basic explanation of Cap Rates. For a longer discussion, see “What is a Cap Rate?“)
Why is this income valuation so important?
Because the value can be changed internally, rather than relying on others, by simply lowering the expenses or raising the income.
For me, it just makes the whole game so much more predictable!
6. Less Competition
When shopping for a single family home, I am competing against tens of thousands of others looking for a home. Most of these are non-investors who buy property for WAY too much money because the front porch is “so cute” or the backyard is “perfect for Fido!”
Related: Things to Consider Before You Buy That First Multifamily Building: Finding The Perfect Deal
I don’t want to compete with those people.
Instead, when I buy multifamily properties, I’m competing with other investors in my area which means there is FAR less competition. Sure, there are many bad investors who are paying too much, but overall, the competition is just not as brutal.
Conclusion
Multifamily investments are definitely far from perfect.
Owners, Do you agree with this assessment? Why or why not?
Credit: BP
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