5 Reasons Single Family Investors Are Turning to Multifamily Apartments

by | BiggerPockets.com

Why are more single family home investors stepping up to the multifamily investment space?

More single family home investors appear to be graduating to the multifamily property space. Why is that? What’s drawing them to this niche?

5 Reasons Single Family Investors Are Turning to Multifamily Apartments

1. They work better with the changing U.S housing market.

High rents and need for yields have created even more competition for single family homes. This has depleted inventory and hurt affordability. Demand from retail buyers, funds, and new real estate investors has increased competition and bidding wars. For some, this is creating better opportunities in the multifamily space than among residential homes.

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Related: THIS Major Tax Benefit Convinced Me to Put My Money Into Large Multifamilies

2. They offer management efficiency.

There are many efficiencies of scale afforded to multifamily property investors. Management consolidated in one location, for more units, means lower management costs and fewer time demands. This can pay off in many ways, from maintaining occupancy to working more efficiently with contractors and improving maintenance. Every penny and labor hour saved in management means more directly added to the bottom line. As single family investors experience these pain points and learn about the advantages of multifamily, they typically choose to step up to this asset class to scale their portfolios more efficiently.

3. They allow investors to save time.

It takes a lot less work and time to acquire a 46-unit apartment building than 46 single family homes—and I’m speaking from experience. Jumping into a multifamily deal may sound like a lot at first, but it is actually far faster and less time intensive to acquire a these properties. They require one set of paperwork, one set of loan docs, and one set of contractors. That leaves a lot more free time to be enjoyed or spent pursuing more deals.

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4. They support a higher ROI.

Renovations and improvements are some of the most challenging parts of investing in real estate. Flipping houses can be fun and profitable. Still, it can be risky. In multifamily property investing, improvements to individual units or community space can actually lift the appeal and value of the asset because you can demand higher rents generally. That elevates the ROI. Multifamily investors can also more easily reposition and control the value of their own properties. These buildings can be positioned to appeal to affordable tenants, affluent tech workers, and others.

Related: The 4 Phases of a Real Estate Cycle (& When to Buy a Multifamily for Maximum Profitability)

5. They give more direct control.

The value is not as reliant on comps as it is on your ability to increase the value through increasing the NOI. For single family homes, the value of your property is directly tied to surrounding comparables. Multifamilies allow for the investor to have even more control over the property value.

Summary

The market is changing. Many single family home investors are now graduating to multifamily properties. For some, it is out of necessity to maintain the yields and deal flow they enjoyed over the past few years. For others, it is to upgrade now that they have amassed more capital that needs to be deployed in the market. Some may be using multifamily as a way to get ahead of the curve and build more sustainability into their portfolios.

Are you switching from single family homes to multifamily properties? Why or why not?

Be sure to leave a comment below!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record.

3 Comments

  1. jeremy williams

    my question is how does an individual fund the multi-unit property? With single family you can apply and acquire loans through traditional means of income, debt and assets. How do you go after and score a single loan for a multi-unit property that here in the Bay Area may cost 2.5-3 mil. with less than 10% down? With rents that are high you will easily cover your loan and expenses. Do banks look at the income potential and if some or all units are already rented at market rates do they count those dollars as income toward the loan?

    • Greg W Huebner

      Hi Jeremy – unless a very high-net worth individual a single person doesn’t transact a large multifamily acquisition. It is usually syndicated, or money is pooled from private investors to provide for down payment, improvements, closing costs, etc… with traditional bank financing as a 1st position. The investors in return get a large equity portion of the purchasing entity (e.g. LLC) because without their capital the deal wouldn’t be possible.

      There is no set standard; everything can be negotiated with the investors. And as long as you disclose it then you *should* be protected. Having securities attorneys and proper documentation is critical as well, to protect both yourself and your investors.

      The Bank will assess the property more than you. But they will require a guarantor with balance sheet equal to the loan amount, even if non-recourse loan.

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