I love multifamily investments.<\/p>\n
Ever since that\u00a0notorious \u201cKurt Cobain\u201d duplex that I accidentally bought<\/a>, I\u2019ve been hooked.<\/p>\n Now, I know there is a lot of debate\u00a0on BiggerPockets about Single Family vs. Multifamily, and I\u2019m not going to say that a person\u00a0cannot be successful with single-family, but for me and my house, multifamily is the clear winner.<\/p>\n Here\u2019s why.<\/p>\n Perhaps most importantly, multifamily works in my market.<\/p>\n Not every market is going to be conducive to every kind of investing, and maybe it\u2019s 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\u2019t look hard enough.)<\/p>\n 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.<\/p>\n Related:<\/strong> Single Family vs. Multifamily: Which is the Better Investment?<\/a><\/em><\/p>\n Raise your hand please if you like the loan application process…<\/p>\n Anyone?\u00a0<\/i><\/p>\n Anyone?\u00a0<\/i><\/p>\n Bueller?\u00a0<\/i><\/p>\n That\u2019s what I thought.\u00a0Trying to get a loan is a long,\u00a0arduous\u00a0process that no one enjoys. But it is a\u00a0necessary evil for most real estate investors — which is another reason why I enjoy multifamily so much: there are fewer loans\u00a0to obtain!<\/p>\n 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 \u201cyes\u2019s\u201d I need to hear from the underwriting department.<\/p>\n Exhausting, no?<\/p>\n Instead, I can buy a 20 unit apartment building and get just one loan. One application. One set of financials.<\/p>\n I only need to get one \u201cyes.\u201d<\/p>\n I hate insurance.<\/p>\n I understand\u00a0the importance of it, but the insurance world is just so cumbersome and frustrating. A good amount of my wife\u2019s administrative time is spent just dealing with insurance.<\/p>\n We have boxes and boxes of paperwork with nothing but insurance documents.<\/p>\n This policy got canceled. You get the picture.<\/p>\n When I invest in a multifamily property, I have ONE insurance policy on it. It\u2019s so much easier to keep track of and manage.<\/p>\n When investing in multifamily units, I am able to separate out the emotion from the transaction much more easily\u00a0than a single family home.<\/p>\n Multifamily is all about the\u00a0math. The numbers! This is especially true on the larger multifamily properties (5+ units)\u00a0where the value is actually based on the income, rather than what the Joneses paid last spring.<\/p>\n And that leads me to #5…<\/p>\n Multifamily units with more than 5 units are not valued the same way as single family properties. And I love that.<\/p>\n 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.<\/p>\n But\u2026 that\u2019s just so subjective!<\/p>\n Commercial properties, on the other hand, are valued based on the return on investment they give their owners. After all, it\u2019s not easy to compare a 24-unit apartment building with another 24-unit apartment building with the exact same returns because you\u2019ll never find that similar property. Commercial investments are just too different.<\/p>\n 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?<\/a>“)<\/p>\n Why is this income valuation so important?<\/p>\n Because the value can be changed internally, rather than relying on others, by simply lowering the expenses or raising the income.<\/p>\n For me, it just makes the whole game so much\u00a0more predictable!<\/p>\n 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\u00a0front porch is \u201cso cute\u201d or the backyard is \u201cperfect for Fido!\u201d<\/p>\n6 Reasons to LOVE Multifamily Investments Over Single Family Homes<\/h2>\n
1. Multifamily Works Well in My Market<\/h3>\n
2. One Loan, Multiple Units<\/h3>\n
3. One Insurance Policy<\/h3>\n
\nThis policy automatically increased.
\nThis policy changed, and now they only cover part\u00a0of what they did before.
\nThis policy had our address wrong.
\nEtc.<\/p>\n4. Math Over Emotion<\/h3>\n
5. Income Valuation<\/h3>\n
6. Less Competition<\/h3>\n