Apartment vs SFH Investing

4 Replies

It seems I read on BP more frequently that apartment investing seems to be better overall than SFH investing. I have always bought SFH's, but may be open to multifamily as an option. From an investor's point of view, what risks are there with apartments versus SFH's? It would seem that maintenance risks are only multiplied which is one of the main risks that pops into my head. I like SFH's in this way because I can compartmentalize risks around maintenance. How do you multifamily investors get comfortable with this and other risks that may not reside as loudly with SFHs? Or am I viewing this all wrong?

Travis, that all depends on your level of involvement and whether you're interested in doing small MF with one or two investors, or whether you're interested in larger MF as a passive investor.

When it comes to the ladder, I'd say there are less risks due to economies of scale and other things:

1. Maintenance and other expenses can be marginally reduced based off of a discounted rate for a higher number of units.

2. Vacancy costs are far less risky. With a SFH, if a tenant leaves unexpectedly, you're left covering the mortgage. In a 100 unit MFH, if three tenants up and leave, you've still got 97 other rents covering their portion.

3. A number of studies have shown that MFH (large MFH in particular) are MUCH more recession-resistant than SFHs.

These are just a couple of thoughts that pop in to my head immediately. If you'd like to discuss the topic further, feel free to connect!

This is good info and thought provoking. From a risk perspective, I guess it makes sense. From a return standpoint down here in San Antonio, it is hard to find anything right now that beats my returns on my current SFHs and this includes MFs when I run the #'s. I see you are in Austin so perhaps it is different up there. I have had a winning strategy with SFHs for the past few years on buy and holds, but I am always game to learn more about different avenues, too.

@Travis C. it's hard to find multi family that is listed that makes sense. All of the good deals are off market.

@Michael Bishop good points.

One difference between sfr and multifamily is that often the checks you write are much bigger in multifamily. That sounds obvious but it has some important implications:

  • Income & expense budgeting becomes critical.
  • Accounting systems need to be robust to track actual inc. & exp. against the budget.
  • Vendor, purchasingĀ  and payment policies need to be in place and enforced.
  • Good cash management is extra important.
  • Controls are needed for who has access to cash and the cash mgt accounts, when they can access and how much they have access to.
  • Planning & budgeting for CapEx and CapEx reserves require a professional approach.

Skip one of these and you'll end up growing a value add deal for the next buyer while the property underperforms in the present. That's why a deal is not a deal for us unless it pencils with a professional property management co. who has the verifiable systems already in place.

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