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!
@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, purchasing 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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