In our last post, we discussed the dilemma of investing in multifamily or single family properties. We also briefly stated that we are firmly on the multifamily side of the argument. The purpose of this post is to elaborate on some of the major points that have us convinced multifamily investment is the way to go.
It goes without saying one of the biggest motivators to invest in the real estate market is to grow one’s wealth, assets, and portfolio. Which leads us to an aspect of multifamily property we think most, if not all, investors desire: scalability.
Instead of growing a portfolio one by one, building by building, investing in multifamily allows investors to acquire numerous properties with one purchase. After successfully acquiring a third or fourth property, it is not uncommon for investors to have exponentially grown their real estate portfolio at a much faster rate than single family investment. Furthermore, the monthly income scales with the portfolio size, mitigating some of the risk of the investment.
Another crucial reason we find multifamily to be more beneficial than single family is professional property management. Yes, single family owners/investors can and do hire property management companies to oversee operations, but it is not nearly as cost-effective on such a small scale compared to that of multifamily properties. Often times you’ll find single family owners managing their own properties, which requires a lot more time and effort most investors are looking to exert.
On the contrary, an efficient property management company can become one of a property owner’s best assets. The company you hire becomes the face of your property, as it will be handling day-to-day operations, making critical financial decisions, and interacting with current and future residents. As a result, owners and investors can focus on growing and improving their wealth elsewhere without having to micromanage a property.
In addition to professional management, we find the process of valuing a multifamily property to be a very beneficial perk on both the buying and selling sides of a transaction. Like other businesses, multifamily properties are evaluated based on performance. For example, when reviewing a property, appearance and location are important things to consider, but that’s only the tip of the iceberg. The big indicators on a property’s value include net operating income (NOI) trends, capitalization (CAP) rate, and cash-on-cash returns.
Therein lies an opportunity for a competitive advantage we always look to capitalize on, and one of the biggest reasons we are exclusive to multifamily real estate. To a certain extent, once we gain ownership of a property, the value of said property is largely dictated by our actions and decisions. Consequently, when we look to sell, we can have the confidence the value of the property has improved to help meet our expected investor returns. Buyers will take current value based on NOI and CAP rate in addition to perceived future value when making their offers.
In contrast, in the single family arena, no matter how well we implement operational efficiencies we would have little control over what our ultimate resale value would be. Most likely, no single family home will sell for more than its value as determined by a broker’s comparative market analysis (CMA) or bank appraisal.
While we could go in to never-ending detail on all of the aspects that make multifamily property investment work for us, we feel these are some core characteristics any investor can find attractive.
*Attached is a Business Insider Article in which New York Times bestselling author and expert contributor to networks such as The Huffington Post and CNBC, Brad Cardone, discusses his experience in multifamily real estate.