6 Reasons to LOVE Multifamily Investments Over Single Family Homes

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I love multifamily investments.

Ever since that notorious “Kurt Cobain” duplex that I accidentally bought, I’ve been hooked.

Now, I know there is a lot of debate on BiggerPockets about Single Family vs. Multifamily, and I’m not going to say that a person cannot be successful with single-family, but for me and my house, multifamily is the clear winner.

Here’s why.

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6 Reasons to LOVE Multifamily Investments Over Single Family Homes

1. Multifamily Works Well in My Market

Perhaps most importantly, multifamily works in my market.

Not every market is going to be conducive to every kind of investing, and maybe it’s not good in your area. (Though I know people succeeding at multifamily in almost every market in America, so I think some people just don’t look hard enough.)

In my market I can find duplexes, triplexes, fourplexes, and more just on the MLS, and they actually make financial sense. In other words, they are going to cash flow.

Related: Single Family vs. Multifamily: Which is the Better Investment?

2. One Loan, Multiple Units

Raise your hand please if you like the loan application process…

Anyone? 

Anyone? 

Bueller? 

That’s what I thought. Trying to get a loan is a long, arduous process that no one enjoys. But it is a necessary evil for most real estate investors — which is another reason why I enjoy multifamily so much: there are fewer loans to obtain!

If I were to go out and buy 20 single family homes in the next few years, those are 20 loan applications I need to fill out. Twenty financials I need to prepare. Twenty “yes’s” I need to hear from the underwriting department.

Exhausting, no?

Instead, I can buy a 20 unit apartment building and get just one loan. One application. One set of financials.

I only need to get one “yes.”

3. One Insurance Policy

I hate insurance.

I understand the importance of it, but the insurance world is just so cumbersome and frustrating. A good amount of my wife’s administrative time is spent just dealing with insurance.

We have boxes and boxes of paperwork with nothing but insurance documents.

This policy got canceled.
This policy automatically increased.
This policy changed, and now they only cover part of what they did before.
This policy had our address wrong.
Etc.

You get the picture.

When I invest in a multifamily property, I have ONE insurance policy on it. It’s so much easier to keep track of and manage.

4. Math Over Emotion

When investing in multifamily units, I am able to separate out the emotion from the transaction much more easily than a single family home.

Multifamily is all about the math. The numbers! This is especially true on the larger multifamily properties (5+ units) where the value is actually based on the income, rather than what the Joneses paid last spring.

And that leads me to #5…

5. Income Valuation

Multifamily units with more than 5 units are not valued the same way as single family properties. And I love that.

If I were to sell you my single family home, the appraiser would look at a few other single family homes that were similar and base their appraisal on what those other homes sold for.

But… that’s just so subjective!

Commercial properties, on the other hand, are valued based on the return on investment they give their owners. After all, it’s not easy to compare a 24-unit apartment building with another 24-unit apartment building with the exact same returns because you’ll never find that similar property. Commercial investments are just too different.

Instead, we rely on the income to base value on. If these 3 properties that recently sold gave the owner a 10% return on investment, then this one should also. (This is a really basic explanation of Cap Rates. For a longer discussion, see “What is a Cap Rate?“)

Why is this income valuation so important?

Because the value can be changed internally, rather than relying on others, by simply lowering the expenses or raising the income.

For me, it just makes the whole game so much more predictable!

6. Less Competition

When shopping for a single family home, I am competing against tens of thousands of others looking for a home. Most of these are non-investors who buy property for WAY too much money because the front porch is “so cute” or the backyard is “perfect for Fido!”

Related: Things to Consider Before You Buy That First Multifamily Building: Finding The Perfect Deal

I don’t want to compete with those people.

Instead, when I buy multifamily properties, I’m competing with other investors in my area which means there is FAR less competition. Sure, there are many bad investors who are paying too much, but overall, the competition is just not as brutal.

Conclusion

Multifamily investments are definitely far from perfect.

However, for me it just works, and I’ll continue to look at multifamily properties to build my wealth with.

What about you?

I hope you’ll share your thoughts below in the comments and let me know why you like (or dislike) multifamily properties.

Until next time,

Happy Investing!

Brandon

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

35 Comments

    • Nathan Emmert

      I deal with 1 Property Management company whether I have 1 unit or 30 units… whether that is 1 apartment complex, 10 triplexes, or 30 SFHs… the only headache I have is managing a single company so this is sort of a non-factor!

      Besides, thinking of tenants as headaches is a very poor approach for landlords… frankly, those are your customers, your income generators. If Walmart started to think of their shoppers as headaches their business model wouldn’t hold up.

      Extrapolating further on the business model idea… would you rather have 1 big customer or 30 small customers? Ask companies who have 90% of their business tied up by Walmart how powerful they feel. When you have 1 sole customer, they have a TON of power because they have the ability to hurt you financially. If they are all tiny, you retain the power. One of those 30 is too much work, good bye, have a nice day… but if they are your only customer, you probably put up with a lot more BS to avoid financial pain and distress they can cause by leaving.

      • Jay C.

        EZ math…..30 customers over 1 any day of the week. Thats buisness 101.

        On managing the units I have the skiills to do it myself so in my case I cut out the property manager middleman.

        Now to recap for you as you misread my post.I was playing devils advocate. No one thinks of their tennants that way so please spare me your nonsense. Just follow along and dont re-write my post.

        Thanks

  1. KYLE Z.

    I have two small multi’s and 3 single family houses. the multifamily’s have a little more cashflow and have the bonus of still being able to pay for itself even with a vacancy. That being said the single family’s have way less headaches with tenant complaints and less vacancies.

  2. AJ Smith

    Nice article and great site! The loan process for investor or primary resident even if it’s simple re-finance is such a pain. I would have disagree in some respects, i find old apartment buildings in lower income neighborhoods tenants will trash it. Those costs to fix/rehab the unit are significant. I would be curious to know how you manage it, do you live in one unit and manage the first. Some areas apartments do make sense, it’s all about tenant and property mgmt.

  3. James Syed

    Great article, Brandon. Congratulations!

    I agree multifamily is clear winner over single family (in my opinion as well). Cash flow is way better when comparing to single family. I love the phrases like “think bigger, aim high, etc”.

    Sometimes multifamily has more turnovers, however in the long run, it beats single family any day. Will be signing up for your webinar shortly.

  4. Stephen Hundley

    I’ve found for my area, multi family can be more difficult to find quality tenants than single family. There are very few multi family buildings in what is considered A or B areas. Most of the multi family in my area is considered C or D areas. I only invest in A or B so multi family doesn’t work for me most of the time.

    Not to say I would never consider buying a small multi family because I would but it makes more sense to invest in single family in Lafayette, LA if you want high quality tenants. Know your market and adjust accordingly!

  5. Corey Hassan

    Awesome post. My wife and I made the mistake of buying a SFR when we got our jobs and have decided now to look to sell our house and get into Multi families. We have done a lot of research (a LOTT being done on Biggerpockets.com) and believe we can get a great return if we found one at a good price in our area. I would love to attend this webinar as well but I had also planed on going to our local REI meeting tomorrow night. Would love to know if this information from the webinar will be available anywhere else afterwards.

    Thanks Brendan, love the podcasts you and Josh host as well!

  6. Ken p.

    Great article Brandon! To these reasons to love multifamily, I would add two more. They were big motivators for my wife and I to foray into multifamily, and I listed them in a forum post I wrote last fall recapping our first year as MF landlords (https://www.biggerpockets.com/forums/223/topics/149725-reflections-on-the-first-year-as-a-mf-owner): 1) much less time spent looking at prospective properties prior to purchase, and 2) provides a way to accelerate growth of your real estate portfolio for late starters.

    For single family house purchases, we were looking at about 8 – 10 properties, running numbers on half of them based on various upgrade/repair needs, and making 3 or 4 offers. While we spent a lot of time looking for and then in due diligence on the 18 unit multfamily we bought, it was an order of magnitude less than it would have been to search for and then successfully buy 18 properties individually.

  7. Curtis Bidwell

    Brandon, nicely done! Excellent points. Let me add a couple additional benefits that come to mind:

    1. ECONOMIES OF SCALE: The more units involved generally means a smaller average cost per unit (sometimes for purchase but definitely for maintenance and upkeep). Standardizing helps in several areas: You can create 1 PROMO piece that can be utilized for all like-units – a 24 unit apartment needs basic common info plus a couple different layout shots. Also, you can utilize concentrated MANAGMENT and MAINTENANCE personnel with all standardized materials (all the same size hoses, faucets, carpet/linoleum, etc..) Lowering cost per unit = higher cash flow! Also, 1 lawn to mow, 1 roof to cover, etc..
    2. You talked briefly about FINANCING. While it was alluded to in a couple of your points let me say it directly: In multi-family your personal income matters little-to-none. The ability of the property to produce income is what truly matters in order to get a loan (of course you need to have cash reserves, and meet other requirements).
    3. VACANCIES don’t hurt as much! When my tenant moves out or doesn’t pay his $1800 rent on a home with a mortgage payment of $1500, it hurts bad! When a vacancy or no-pay occurs on a 24 unit I’m only out 4% per unit!
    Also, apartments offer a steady, reliable income source even during downturns and often absorb market fluctuations better than SFR.

    I look forward to seeing benefits listed that others have realized!

    • Timothy Trewin

      Curtis,

      With the financing you are talking about in your post, you allude to the fact that your personal income means little to none and the ability of the property to produce income is what matters. Now is that with any multi, or just commercial properties? I read the article above and it seemed like it mattered for commercial properties. I am just curious as I make that plunge and decide on whether to make my first true investment property a SFR or MFR. Thank you.

      Tim

      • Curtis Bidwell

        Timothy, You bring up a good point. There is definitely a defining line between “multi-family” 2-4 units vs. “multi-family” 5+. 1-4 units will fall under residential rules and your personal income will definitely be considered. A portion of the rents will be credited toward your income and help with your ‘debt to income’ ratio. In a commercial loan (5+ units) the property’s income and expenses are considered apart from your personal income. In most cases they will take a “global view” of your income/expenses and want to see your total investment portfolio as a part of their underwriting. But the goal here is to see that your investments are not leveraged too highly and will meet their debt service requirements -not a review of your personal income (though they will certainly ask for it in the loan application).

        Hope that helps! Check through the Forums, you’ll find some actual loan officers that can clarify more and help you determine what your best approach should be. Personally, I would go for a 2-4 unit as a good place to start, for many of the reasons listed above.

        Good luck!

        • Timothy Trewin

          Curtis,

          That was a great help and I appreciate it. It makes more sense to me now how they look at your income. Now I am wondering is that a common practice across banks to look at a portion of rents going towards income, thusly your debt to income ratio? Also is that just for MFRs they do that? I know I have a SFR in Colorado that I am currently renting and when I started looking for a loan to buy a MFR the bank that I talked to would not consider the income that house was generating for me because I did not have two years worth of rental income to claim. Not sure if that was because of the nature of the rental, the bank, or both. This does affect a lot of how I get financing for another rental property. I appreciate any answers you could give. Thank you.

  8. Chris masons

    Great read BRandon. I agree with most of your points on why Multi family is a great investment vehicle. Although I have been somewhat swayed to the dark side as of lately with a few single families.

    In the end it’s all about the tenants. If you get great tenants things will most likely be good VS. if you get a bad tenant look out as it can really leave a bad taste in your mouth. I have been a mulit family investor for 17 years and been through alot and seen alot.

    thx,
    Chris

  9. Cashflow, if understood and deployed properly is a great avenue to build wealth. To a lender one with W2 income plus cash flowing in from a multi family, will be viewed as a better lending risk compare to someone in a similar W2 position but with SFR, all other things equal. Think about easier access to investable funds!!!!
    Or think about who has a high default risk!!!

  10. Graham Mink

    Hi Brandon,

    Another great blog post! I do want to disagree with you on point #3, Insurance. It sounds like you need to find yourself a better insurance agent. I currently own multiple properties spread out in a 50 mile radius that are all covered under one BOP insurance policy. When I buy a new one I simply call up Renee (my WONDERFUL Independent Insurance Agent) and after a 10 minute phone call I’m all covered. If there are any problems or questions I give her a call and it’s taken care of, no hassles. I like independent agents because they have multiple companies to choose from, so I’m not going to be stuck with one rate or one option.

    I’m not a big fan of insurance either, but it is a necessity and your experience will vary SIGNIFICANTLY depending on who your agent is. If I were you I would get all of those policies together and set up some appointments with 2 or 3 new agents in town. I am willing to bet they will fight over your business and you should be able to save a significant amount of money and time. Also, vet them as you would any other property manager, contractor or tenant you deal with. Insurance is treated like a commodity, and in many instances it is, but the right Agent you will quickly realize how much quality service makes a difference.

    P.S. If anyone hasn’t shopped their insurance policy in the past 2-3 years I can almost guarantee you are paying too much! Ask your current agent for a copy of your policies AND your “loss runs” for the previous three years. This will alert them to the fact that you are shopping your policy and they will probably start asking questions, you may even get a call from your agent asking why you want them. With that information you can get a quote from another Insurance Agent and either switch to them or go back to your current agent and ask them for a better deal. The squeaky wheel gets the grease! (FYI this price negotiation will only work if you have a commercial insurance policy. If you simply have homeowners policies for each property then rates are more standard. The commercial side has a lot more flexibility. It still pays to shop either way though!)

  11. Bryan Wooley

    Hey Brandon!

    I am looking to purchase my first investment property this year and after reading several articles on BiggerPockets, I want to pursue the multi-family route.
    I have been renting for many years and have considered purchasing a plex of some level (maybe 3 @ minimum) and living in one of them for a time.
    What advice can you give concerning going after my first property?
    Also, how do I go from having one property and then pursuing the second?
    I look forward to your response!
    Thanks, Bryan

  12. Shane Marshall on

    Question? To keep your investment money more accesable in case something better comes along, do you guys think you can sell a smaller multi-Fam unit as easy as single Fam units? As I’m just starting out, I have had advice to buy SF units then up grade to large multi-Fam units. So some have said go with single fam units as they are easier to get out of to buy ur next investment? Any thoughts on this pros vs cons. Much appreciated.

  13. Mike Webb

    Awesome Brandon! This is what my focus is on in 2015. I was wholesaling everything I came across in 2014, which was great; however, now I need to focus on building wealth. Multi-family properties are a good fit for me.

  14. Milan Blooms

    Hi Brandon,

    Thanks for sharing this post.
    Like you mentioned, real estate investing is subjective to personal preference.
    One thing I would like to add: it’s also subjective to personal area of expertise.
    Some people that are great with flipping may not be patient and possess the skills necessary to deal with tenants or property managers. Two things I love with multifamily units are monthly cash flow and long term gains.

    Milan

  15. Scott Schultz

    I have analyzed Multi deals for years, and cant make the numbers work, I hear about people paying $50K/unit and being happy with the return, Im not happy with that return on an SFR, (generally like to be all in sub $50K with tents in the $750+ range) the multi’s I see sell barely break even with no debt service, so i really dont see how it works out. Apparently Im missing something.
    I do like the Idea I one roof, one foundation, ect, but they are tougher to sell, as the pool is much smaller, its kinda putting all the eggs in one basket, makes me nervous, but I would be nervous leveraging more than 50% LTV for more than 15 years, so it may be a me problem.

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