Why You Should Invest in Multifamily Instead of House-Flipping

Most people that consider multifamily probably start on the single-family front which obviously if you're investing in single-family and single-family rentals it's very binary. You're either rented or you're not rented. Multifamily gives you the ability to have multiple revenue streams within the same apartment building, with larger complexes you can dive into more revenue streams and with that you’re further away from being at primary. When you invest into large multifamilies you have so many things to your advantage, you have cash-flow and that cash flow is across many different units so if you do have a vacancy hit with two or three apartments within a hundred unit apartment building your spreads are much greater and you can actually carry that much easier than if you were in an eight-plex down two, three or four units. In that case, you may find it difficult to pay down your mortgage and cover your expenses, etc.

There are tax benefits from the larger apartment building and there are certainly different strategies you can put together like cash cost segregation reports and other things that can help. On the asset you can force appreciation very well because the numbers are driven by the income and the bottom line may be net operating income that you can create so you can force the appreciation and improve the building through many via multiple routes from cutting expenses or raising income just on some components. There's the depreciation factor that plays into your cost segregation strategy, plus there's the simple ability to have appreciation by raising rents. You can raise rents yearly two or three percent to keep up with the market.

Say I'm a passive investor and I want to invest my money (a lot of private money), why would I want to invest my private money into a multifamily instead of a house flipper that does a lot of flips over the course of the year?, what is the benefit of being in multifamily? Because house-flipping is a continuous process. You flip a home at 3 months and then you have to be able to push that capital together to get the next project to flip in the last three or four months. You have your money constantly in and out of deals whereas with multifamily you can get on with the economies of scale where you're basically investing in an asset due to the economies of scale. That asset carries on with all the advantages we mentioned before such as cash-flow and depreciation tax.

You can still afford to have full-time staff, a maintenance guy and a managing company which can carry it for you for many years so you don't have to worry about constantly having your money put to work.

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