Did you start with single family rentals ?
Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
Did you start with single family rentals ?
Most Popular Reply
Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes
2yDisagree with this, you still have HVAC, turnover and roof repairs in multifamily which could just as easily wipe out your cash flow. The difference is the volatility of owning multiple units versus a single house is usually a lot lower. Definitely more scalable buying multifamily.
27 Replies
- Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes2y
Disagree with this, you still have HVAC, turnover and roof repairs in multifamily which could just as easily wipe out your cash flow. The difference is the volatility of owning multiple units versus a single house is usually a lot lower. Definitely more scalable buying multifamily.
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Robert Rixer:
Disagree with this, you still have HVAC, turnover and roof repairs in multifamily which could just as easily wipe out your cash flow. The difference is the volatility of owning multiple units versus a single house is usually a lot lower. Definitely more scalable buying multifamily.
Nice! Of course there are still repairs. But with multifamily, it is spread across X number of doors. A new HVAC unit isn't going to wipe out your cash flow on a 50 unit but it will on a SFH.
- Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes2y
A 50-unit multifamily vs. 1 SFH is not an equivalent comparison. The equivalent would be a 50-unit multifamily vs. a 50 SFHs. If a furnace goes out on 1 SFH, you still have cashflow from 49 others.
- 2yBenjamin AakerPro MemberRental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votesI started with single family and moved to multifamily. People can do well with either one. My experience has been that much of the overhead with multiple parcels is reduced. A 50 unit building has one property tax bill and one insurance bill. Repairs 'can' be easier as the fixtures can be purchased in bulk and are similar. There's only one roof to replace and it's a lot smaller per unit than single family. There's only one sewer to fix. There's just one LLC vs multiple. One purchase and sale gets multiple doors rather than just one.
Downsides? With multifamily you are running a community. You don't turn over as much utility expense in multifamily. For instance, the owner still does snow removal and landscaping. Intra-tenant issues can be more since they live so close to one another. Nonetheless, put me firmly in the multifamily camp. - Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2yThanks for sharing your opinion.
Quote from @Robert Rixer:
A 50-unit multifamily vs. 1 SFH is not an equivalent comparison. The equivalent would be a 50-unit multifamily vs. a 50 SFHs. If a furnace goes out on 1 SFH, you still have cashflow from 49 others.
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Benjamin Aaker:
I started with single family and moved to multifamily. People can do well with either one. My experience has been that much of the overhead with multiple parcels is reduced. A 50 unit building has one property tax bill and one insurance bill. Repairs 'can' be easier as the fixtures can be purchased in bulk and are similar. There's only one roof to replace and it's a lot smaller per unit than single family. There's only one sewer to fix. There's just one LLC vs multiple. One purchase and sale gets multiple doors rather than just one.
Downsides? With multifamily you are running a community. You don't turn over as much utility expense in multifamily. For instance, the owner still does snow removal and landscaping. Intra-tenant issues can be more since they live so close to one another. Nonetheless, put me firmly in the multifamily camp.Great points!
- 2yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
You shouldn't buy single family homes for cash flow. It's a very inefficient asset to own. Those who are most succesful understand this and grow single family portfolios in transitioning neighborhoods. Once those neighborhoods transition to owner occupied neighborhoods and the appeciation event occurs, they should be sold. Those who fail in the sinlge family space purchase in stagnant markets that never experience the appreciation event, sell too early, or continue to own and operate the portfolio after the neighborhood transition occurs and therefore fail to re-deploy the equity when the opportunity presents itself. It makes no sense to compare a single family home to a multi-family asset. Both can be sound investments and strateigies, its just a matter of understanidng the proper business plan and execution.
- 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 720 votes
There are advantages and disadvantages to both which is why institutional investors are also buying single-family homes. Investors starting out or in new markets can benefit from the relative liquidity of a SFH. Easier to buy and sell as a stepping stone to buying more multifamily in the area. In the Reno, NV market there are better cap rates on single-family than multifamily because the the supply issue of multifamily. It really depends on the market, an investors goals, and their individual situation if an investors would switch to multifamily.
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Bradley Buxton:
There are advantages and disadvantages to both which is why institutional investors are also buying single-family homes. Investors starting out or in new markets can benefit from the relative liquidity of a SFH. Easier to buy and sell as a stepping stone to buying more multifamily in the area. In the Reno, NV market there are better cap rates on single-family than multifamily because the the supply issue of multifamily. It really depends on the market, an investors goals, and their individual situation if an investors would switch to multifamily.
Totally agree! Definitely pros and cons to everything.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2y
I don't think your numbers reflect the real comparison.
Our SFH cash flow gloriously - after doing that for 20 years I am comfy with the returns for sure. We have a minimum $300/month cash flow after debt service to consider a deal and watch for $400-500 as a preferred return.
I amortize HVAC repairs over 10 years and bake that into every SFH, about $8000/10yr/12mo = $65 per month. Roof on one of our SFH was $7800 this year. 7800/20yr/12mo = $32 per month
To keep it real you have to look at rent increases that average 3-5% per year so your cash flow changes over time.
To compare this fairly you have to remember that many multi-family have an HVAC unit per apartment so you don't get to escape that expense. The roof is cheaper per unit, especially if you have multiple floors but it isn't 0. You also still have turnover costs in multi-family, those units don't paint themselves!
I just read and posted a question on another post literally minutes ago. An investor had a question about setting up LLC with 100 SFH in her portfolio!
I asked her to share why she chose SFH to such a large extent over MF. Is the appreciation of SFH more than MF? Can it even be compared with each other? Anyone here in her camp? Seems majority are in MF camp.
Quote from @Justin Goodin:
Here’s why many investors switch to commercial multifamily 👇
Let's say your rental property makes $200/month in cashflow.
Which is $2,400 annually.
This will WIPE OUT your cash flow:
❌ HVAC repairs
❌ Turnover costs
❌ Roof Repairs
Not to mention, you will most likely need 20% down to buy a rental.
$200K is a starter home these days.
→ How many rentals could you buy each year?
→ How many rentals would it take to replace your W2 income?
This is why many investors switch to multifamily investing.
What are you comparing this to?!?
A roof replacement or other large systems in a multi-family building is going to be very costly...
Not sure what the point of your post was. Did you just discover multi-family investing?
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Tim J.:
Quote from @Justin Goodin:
Here’s why many investors switch to commercial multifamily 👇
Let's say your rental property makes $200/month in cashflow.
Which is $2,400 annually.
This will WIPE OUT your cash flow:
❌ HVAC repairs
❌ Turnover costs
❌ Roof Repairs
Not to mention, you will most likely need 20% down to buy a rental.
$200K is a starter home these days.
→ How many rentals could you buy each year?
→ How many rentals would it take to replace your W2 income?
This is why many investors switch to multifamily investing.
What are you comparing this to?!?
A roof replacement or other large systems in a multi-family building is going to be very costly...
Not sure what the point of your post was. Did you just discover multi-family investing?
@Justin Goodin
I will have to concur more with @Robert Rixer. The comparison is a bit misleading on the OP.
I started with SFRs and moved to multifamily. I will likely go back to SFRs if the opportunity is there. And back and forth again as needed. They are both have their merits and downfalls.
Here is the simple truth, it would take roughly the same amount of rentals, with a few exceptions. One multifamily building with 20 rental units should achieve roughly the same as 20 SFRs. I use that number because that would seem to be the bench mark for FI from W2 for many people, with basic life styles. Double that to 40, either SFRs or unit counts in multifamily, and it should cover most people's FI number for comfortable living standards. If those numbers do not fit FIs, then it is likely bad investing strategies or one has an unrealistic outlook on living standards.
The example takes into account to average cash flow of $200-300 per rental. At 20, that would equal to $4000-6000. At 40, that would equal $8000-12000. Those are some comfortable living standards for most people.
As for capex events, they are not too far off. Rental units within multifamily buildings with have individual A/Cs, heaters, and boilers. There are some exceptions on the boiler. Thus, these things go out and cost similar to SFRs.
In essence, when comparing the same number of rentals, regardless of type, would yield about the same fluctuations in rent. The advantages of SFRs is the quicker ability to partially liquidate. That advantage can translate into quicker growth or plugging holes during recessions by isolating and eliminating low performers or paying off higher grade individuals. That cannot be done with multifamily. The advantage of multifamily is the better control of valuation by the owner and the ease of operations since it's all localized.
There are much more nuances, but thats the most apparent.
Just my 0.02
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Sam Yin:
@Justin Goodin
I will have to concur more with @Robert Rixer. The comparison is a bit misleading on the OP.
I started with SFRs and moved to multifamily. I will likely go back to SFRs if the opportunity is there. And back and forth again as needed. They are both have their merits and downfalls.
Here is the simple truth, it would take roughly the same amount of rentals, with a few exceptions. One multifamily building with 20 rental units should achieve roughly the same as 20 SFRs. I use that number because that would seem to be the bench mark for FI from W2 for many people, with basic life styles. Double that to 40, either SFRs or unit counts in multifamily, and it should cover most people's FI number for comfortable living standards. If those numbers do not fit FIs, then it is likely bad investing strategies or one has an unrealistic outlook on living standards.
The example takes into account to average cash flow of $200-300 per rental. At 20, that would equal to $4000-6000. At 40, that would equal $8000-12000. Those are some comfortable living standards for most people.
As for capex events, they are not too far off. Rental units within multifamily buildings with have individual A/Cs, heaters, and boilers. There are some exceptions on the boiler. Thus, these things go out and cost similar to SFRs.
In essence, when comparing the same number of rentals, regardless of type, would yield about the same fluctuations in rent. The advantages of SFRs is the quicker ability to partially liquidate. That advantage can translate into quicker growth or plugging holes during recessions by isolating and eliminating low performers or paying off higher grade individuals. That cannot be done with multifamily. The advantage of multifamily is the better control of valuation by the owner and the ease of operations since it's all localized.
There are much more nuances, but thats the most apparent.
Just my 0.02
Great points! Finally somebody that can leave respectful and relevant feedback. Thanks for sharing your perspective!
- 2yKonstantin GinzburgPro MemberMember since 2021 · 376 posts · 242 votes
@Justin Goodin
I started with single family homes and am now focusing on small multi-families and hoping to scale into large multi-families next. I will need to disagree with your statement though. If you are producing "real" cashflow of 200 per month, this should already have vacancy, capx, and maintenance factored into which indicates that there should be reserves and accounts created that will pay for these eventual problems.
Multi-families have the same repair issues that occur since maintenance and repairs also exist within large multi-family properties. Due to the scale of the work, these costs are also higher than within a SFH. The cost to to repair an HVAC in a SFH is not the same as the cost to repair an HVAC unit that is tied into 50 units so this kind of repair can also wipe out your profits. Success in both SFHs and Multi-families still requires purchasing at the correct price and having the correct systems in place to deal with issues as they arise. - 2yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Justin Goodin My first investment property was a SFH. I bought at precisely the right time for cash and it cash flowed beautifully. I ended up refinancing it later and it is an average asset now but has appreciated like mad so turned out to be great!
I then started to focus on economies of scale and got into multis. I started with a duplex that I house hack and now primarily buy small commercial multis 5-15 units. These are big enough to make financial sense but aren’t out of my price range while I continue to grow. There are also properties of this size in my target markets which don’t really have properties that range in size from 15-50 units.
I will still buy SFH and 2-4 unit properties but prefer to be a little bigger in size.
@Alecia Loveless could you please take a look at https://www.biggerpockets.com/forums/12/topics/1175759-certa... thanks!
- 2yRick BassettBusiness MemberProperty Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes
@Justin Goodin started off with STR's over 15 years ago and still love them. We were fortunate enough to buy most of them right. The units without mortgages typically net $10-12k annually and the units with mortgages net about 1/2 that. In addition to our own holdings we manage many SFR's and Multi's for investor/owners. The SFR's typically do better for our owners on a per door basis than the multi's do.
Bassett Property Management5109 Reviews - 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Multi-family investing will not help the investor with $200k to invest. It will not "replace their W2 income" because they invested in a larger project, they will still at best stand to earn at best 20% per year on their capital. And that's if everything were working correctly, which at this time things very much aren't and the poor investors targeted for these schemes have been stuck with loss of principal or unable to access their money and not receiving any distributions.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
I'm a fan of SFR. I have 25 of them and do ok. My profits are 17k/month after 9 years of investing and rarely ever have turnovers. Multi family averages turnovers every 17 months. Did you factor that in your calculations? Turnovers crush profits. And houses appreciate better over time. And easier to sell if needed. You can sell to an investor or home owner vs multi family needs to sell to an investor.
- Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes2y
Quote from @Alecia Loveless:
@Justin Goodin My first investment property was a SFH. I bought at precisely the right time for cash and it cash flowed beautifully. I ended up refinancing it later and it is an average asset now but has appreciated like mad so turned out to be great!
I then started to focus on economies of scale and got into multis. I started with a duplex that I house hack and now primarily buy small commercial multis 5-15 units. These are big enough to make financial sense but aren’t out of my price range while I continue to grow. There are also properties of this size in my target markets which don’t really have properties that range in size from 15-50 units.
I will still buy SFH and 2-4 unit properties but prefer to be a little bigger in size.
That's awesome! Thanks for sharing your perspective.
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votesCongratulations on your hard work. NOBODY turned 10-20% "distributions" from risky syndication investments into a permanent, inflation protected, $17k per month in profits. If recent history shows anything it's that if you invest in them enough times, you'll lose your money or have a 5 year period where you can't access your money and aren't paid anything while waiting for it.
Quote from @John Morgan:
I'm a fan of SFR. I have 25 of them and do ok. My profits are 17k/month after 9 years of investing and rarely ever have turnovers. Multi family averages turnovers every 17 months. Did you factor that in your calculations? Turnovers crush profits. And houses appreciate better over time. And easier to sell if needed. You can sell to an investor or home owner vs multi family needs to sell to an investor.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2yWell written! I would add that the level of interaction with long term SFH tenants tends to be very, very low for me. Our multi-year tenants are typically very quiet. MF tenants tend to (not always) be less mature, less able to cope with life which means more rukus for the landlord.
Quote from @John Morgan:
I'm a fan of SFR. I have 25 of them and do ok. My profits are 17k/month after 9 years of investing and rarely ever have turnovers. Multi family averages turnovers every 17 months. Did you factor that in your calculations? Turnovers crush profits. And houses appreciate better over time. And easier to sell if needed. You can sell to an investor or home owner vs multi family needs to sell to an investor.
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Switching to commercial multifamily investing can indeed offer several advantages and mitigate some of the challenges associated with single-family rentals. Here are some key reasons why many investors make this transition:
Economies of Scale
Increased Cash Flow
Risk Diversification
Professional Property Management
Easier Financing
Scalability
Property Appreciation
Tax Benefits
However, it's crucial for investors to thoroughly research and understand the unique challenges and considerations of commercial multifamily investing, such as market analysis, property management complexities, and potential regulatory issues. Each investment strategy has its pros and cons, and the choice depends on individual goals, risk tolerance, and market conditions.
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