Commercial Real Estate

5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t)

Expertise: Landlording & Rental Properties
24 Articles Written
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I say this halfheartedly because of the pride held by both the single-family home investor and multifamily investor. I am going to tackle a highly contested topic on BiggerPockets: Is a single-family home a better investment than a multifamily property?

Unfortunately, I am not going to give you a yes or no answer. I am going highlight the reasons why I find multifamily investments to be superior for my investment goals, and you should always analyze an investment based on what you are trying to accomplish. My objective is to persuade you to join the “dark side” a.k.a. multifamily investing. 

5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t)

1. Economy of Scale

When I first began investing in multifamily properties, I focused on smaller units. I owned a few duplexes spread out across the city. Why did I choose this path? This seemed to be the path of least resistance, and in my mind, it was easy to achieve. It appeared to be a sound strategy for me at first, but I quickly realized that each duplex had to be maintained separately. Each property had to be landscaped, the snow plowed, the mechanicals for each property serviced, the roofs and driveway kept in good condition, etc. I came to realize that it would be very difficult for me to achieve an economy of scale by owning a vast array of units spread out across the city, especially as an out-of-town investor.

Related: How Big Should I Aim for My Very First Multifamily Purchase?

What I quickly realized when we purchased our first 25-unit complex was the economy of scale that was present. What does that mean? Since all of our units were in one location, the per-unit expenses were much less. For instance, there was one lawn to mow, one garbage bill, only a few roofs to maintain, and collecting rent was much easier. All the tenants were within walking distance of each other. No driving from one home to the next to evict a tenant. This economy of scale made it much easier for us to manage our investment.

Our goal was to build a business with real estate, and multifamily properties would allow us to scale up quickly and grow the portfolio. It would be much easier to hire a maintenance crew and managers to help run our business. At first, we employed a resident manager. But as our portfolio grew rapidly, we were able to hire full time employees to provide the services to our property.

In my opinion, it is much more difficult to achieve this economy of scale if you are purchasing one single-family home at a time. It can obviously be done, as many of the BiggerPockets members have shown, but multifamily properties are the ideal vehicle if your goal is to build a sustainable and growing business because of the ability to serve more “clients” in one location, along with achieving a higher per-square-foot rent than you can achieve in a single-family residence.

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2. Less Work to Buy

This second reason may seem rather obvious, but I think most investors do not take into account the expense and time it takes to acquire 25 single-family homes as opposed to one 25-unit complex. Even if you bundled several homes together, you are still looking at multiple closings, not to mention visiting all of these homes before you put in an offer. Wouldn’t it be nice to visit one property, negotiate with one owner, come to terms with that single owner, and perform one closing? This reason alone will allow you to focus on your company and grow the business, not to mention the time and expense you will save.

3. Spreading Risk Over More Units

If you own a single-family home and it goes vacant for two months, guess who will be paying the mortgage? YOU. But if you own a 6-plex and two tenants decide to vacate, you still have four rents coming in to cover the expenses. Multifamily properties allow the investor to limit their downside risk by having multiple tenants pay the expenses. Once again, the investment lends itself to the investor model, where the revenue stream will be sufficient to pay the expenses and generate cash flow at the end of the month.

4. Forced Appreciation

Single-family homes are usually purchased based on the sales approach. That is, the “comps” in the market usually drive the value of the property. What is a 3-bedroom, 2-bath selling for? The home is compared to similar properties in the market. In contrast, multifamily properties are purchased using the income approach. Click here to read how to value a multifamily property.

Now, why is this distinction so important? You have much more control in a multifamily property to “force” the appreciation of the property by driving up the net operating income (NOI). Click here to read how to force the appreciation of a multifamily property. There is no waiting for market forces to drive up the value. If you employ a sound repositioning strategy to your investment, you will be able to generate wealth in a relatively short period of time. I think this is one of the biggest and most important distinctions.

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Related: How I Bought a Multi-Million Dollar Apartment Complex at the Age of 26

5. Less Competition

To most investors, this may not seem apparent. But as I read through the forums on most real estate websites, most of the discussions are centered on fixing and flipping and wholesaling, two strategies that focus primarily on acquiring single-family homes. This increased competition ultimately leads to margins being driven down, and profits suffer as a result. In the Northeast, there are countless investors chasing these investments.

In the multifamily space, many investors possess a limiting belief that it is difficult to buy an apartment complex, and they never enter the arena. This faulty thinking has been changing the past few years, but many investors still hesitate to explore the possibilities of jumping into multifamily properties.

My hope is to have provided enough evidence to at least have you consider the benefits of multifamily properties. If you decide to join the dark side, please leave me a comment below and let me know what persuaded you. Please include below what your preference is and why.

Do you prefer single-family or multifamily investments? Why?

Let me know your thoughts with a comment!

Gino Barbaro is a father of six and the co-founder of Jake & Gino LLC, a real estate education company focused on multifamily investing. He has grown his portfolio to 674 units in three years ...
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    Jason M. Investor from Northeast U.S.
    Replied about 3 years ago
    Hi, great article. Im currently purchasing singles, doubles, tri’s, and 4plexes in Rochester NY. It is going well and the numbers look amazing. I believe I am buying well in areas where my property manager can help me to be very successful. I understand that I will have a lot of driveways, roofs, lawns, etc… to maintain, however I will still be successful. This article makes a lot of sense and I love the idea of adding value to force appreciation.
    Jason M. Investor from Northeast U.S.
    Replied about 3 years ago
    Hi, great article. Im currently purchasing singles, doubles, tri’s, and 4plexes in Rochester NY. It is going well and the numbers look amazing. I believe I am buying well in areas where my property manager can help me to be very successful. I understand that I will have a lot of driveways, roofs, lawns, etc… to maintain, however I will still be successful. This article makes a lot of sense and I love the idea of adding value to force appreciation.
    Michael Bishop from Austin, TX
    Replied about 3 years ago
    I really enjoyed reading your article, Gino. I wrote a similar one, although mine has a bit more focus toward syndication. You can see it here: https://www.biggerpockets.com/blogs/10191/66365-8-reasons-why-apartment-syndication-is-an-appealing-investment-vehicle You had some very interesting points that I hadn’t even considered; (1) less work to buy and (2) less competition. I think a lot of investors just think multifamily is bigger than them and fear an entry barrier that simply isn’t as big as they assume.
    Mike T
    Replied almost 3 years ago
    New to BP and very interested in MF investing. You mention a coach or mentor? How do you suggest one goes about finding one? I live in central NJ and am very tentative about buying multis on my own without some experienced advisors.
    David Thompson Rental Property Investor from Austin, TX
    Replied about 2 years ago
    Hi Geno Well laid out points. I would also add professional on site property management especially as you get into larger apartments is a great advantage. It more easily fits into the economics of affordability vs SFR where professional management can often not make economic sense. This frees you up to be more of an asset manager focusing more on strategy vs tactical and enable you time to focus on more acquisitions.
    Daniel Letts
    Replied about 2 years ago
    I am new to BP and have experience in building MF properties . I am interested in restarting investing . How hard are MF properties to locate out of area (state). Am in California and also find it hard to locate properties that have a good ROI in mid state area .
    Branden Bufford
    Replied about 2 years ago
    I’m heavily considering this. My wife finishes business school in 2020 and we want to be in an owner occupant unit for 2 years to live under our means, pay down debt, and also make money at the same time. It’s a short term sacrifice for a great long term return. I’m sure HELOCs are bigger on multifamilies and can allow for just more opportunities.
    Maria Subbotina Specialist
    Replied almost 2 years ago
    One more positive aspect to be mentioned is that it is much more beneficial for investors eager to grow a large portfolio, as investing in single-family property takes more time and efforts. I mean, get a 15 unit apartment building would be faster and easier than acquiring 15 different single-family homes. As a result, your investment portfolio can be?ome larger, while the efforts made are much less.
    William J. Morgan Rental Property Investor from Roanoke, Virginia
    Replied about 1 year ago
    I have zero properties at this point! Iam currently looking for a duplex or townhouse for my first investment! I have read that as a veteran I can purchase a 4 plex is with my VA loan as long as I live in one unit. I have only $10,000 to put down. But I have recently seen two 8-12 plex properties in my area come on the market for sale. Is this too much for me to try to attain or iam Assuming I need much more down to make it work?