Why Smart Investors Are Rushing Back To Multifamily

Why Smart Investors Are Rushing Back To Multifamily

Single-family rental properties became a hot fad in 2008. Warren Buffett even said he would like to buy a couple hundred thousand of them if it wasn’t for the headaches of managing them. That saw a huge flood of individual and corporate investors rushing in to snap them up. Some have done very well and have cashed out for hundreds of millions. Others flopped.

Now savvy individual and institutional investors are making a move back into apartment building investing. Here’s why…

Economies of Scale

No one is going to be able to retire on a couple of single-family home rentals. It takes a portfolio. Spread out single-family homes become very management-intensive very quickly. It also means much higher per door acquisition and operation costs than multifamily investing. Costs get cheaper when you invest at the scale of apartment buildings, but the rents stay the same.

Transactional Costs

Multifamily real estate investors may also acquire value add properties and eventually flip them, though their transactional costs and time demands can be far lower when securing new assets in bulk, than juggling many closings and loans.

Taxes & Net Returns

Taxes generated from income-producing commercial real estate is often treated much differently than for those fixing and flipping houses. Ultimately, it is about how much you get to keep, not just the top line you think you are making. Taxes make or break these numbers.

Deep & Broad Diversification

Multifamily apartments build deep and broad diversification into an investment portfolio. It’s quite easy for three single-family home rentals to go vacant or underperform. If that happens in a 100 or 200 unit apartment complex income-producing, you’d barely notice the difference in income.

Rewards, Not More Work

Many successful investors are waking up to the fact that hands-on real estate investing is a lot of work. It is more than a full-time job. If what you really want is just the returns and security of real estate investing, that may be best achieved in professionally managed multifamily investments. You sit back and collect the checks, while a top team does all the work.

Supply & Demand

There is a lot of competition from amateur investors and retail buyers in single family who happily overpay for assets every day. Yet, there are millions of vacant homes out there. There is a lot less of this competition in multifamily, and apartment rentals will only experience more demand whether or not the single-family market goes up or down.