A quick primer: Single-family rentals (SFR) are a single house with one tenant and one lease. Multifamily properties are apartments, with many tenants and many leases. I personally have invested in both and see pros and cons of each that I’ll be discussing over the coming weeks.
It takes a lot of time and effort to buy a property. You have to analyze markets, crunch numbers, profile tenants, find a property management team, pick a lender and get qualified…
But here’s the thing… all that work will be roughly the same whether you buy 1 or 50 units! So if you want more units, this is one area where multifamily really shines.
Some examples to put this in perspective:
You may look for different highlights in a market for a single family rental vs a multifamily property, but you’re still ‘analyzing a market.’
(What are the schools in the area? What are the major employers? What are the crime statistics? What kind of stores are around? Walmart or Nordstrom? Starbucks or 7-11? Etc.)
You may crunch larger numbers for a multifamily property, but the amount of numbers/expenses are relatively the same regardless of your property size.
(Rent from a house may be $1,500/month. Rent from all your apartment tenants may add up to $15,000/month. It’s still ‘rent,’ just more zeros. Insurance on a house may be $500/year. Insurance on an apartment complex may be $5,000/year. It’s still ‘insurance,’ just more zeros.)
You will still profile your tenant base regardless if you’re buying a SFR or a multifamily property.
(Who lives in the area? What is the median income level? Education level? Etc.)
You will have to talk to a lender and qualify for a loan, just a different department at the bank depending on your property size.
(A house requires a residential mortgage, whereas a multifamily property requires a commercial mortgage. A local bank, for instance, can offer both types of financing, you simply talk to a different person at the bank and submit different paperwork – though commercial mortgages are more paperwork and require a more advanced applicant.)
You will need to find a property manager, but will simply call on different managers who focus on different property sizes.
(Some property managers focus on houses and others focus on multifamily properties. You may ask them different questions and look for different answers, but you’re still having the conversation.)
You see, the time you’ll spend to acquire either type of property is roughly the same. It may feel more overwhelming to buy larger properties, but that is simply a mind-shift.
Now, if you invest passively in syndicated apartment deals, all this time and research is done for you while you get to enjoy the benefits of having a much larger property with multiple tenants paying your monthly rent. But I will always encourage you to learn as much as possible, even when investing passively.
Next week…Part 2: COSTS REQUIRED TO BUY A PROPERTY.