Multi family vs. Multiple single-family units

[Wendy Huang]

1) Is it true that to invest/buy a multi-unit apartment one would need minimum 20% down payment?
If that's true, isn't that only possible for big finance companies (not for individual W2 earners, despite solid income bracket)?

2) Also, I have only seen an Apartment complex sold as an entire triplex or 6-unit etc, and never as partial sale (i.e. selling only 2 units out of a 6-unit complex, for example) so it is WAY LESS liquid in case if investment goes poorly?

Also, these Apartment complexes take WAY LONGER to sell, based on the days theystay on realtor.com, Trulia etc

3) Even though it is more time consuming (lots of offering/loan/inspection/closing deals), wouldn't it be less risky/more liquid to buy 10 cash-generating single family units instead of buying one single 10-unit complex? This way, you can sell the home that is not generating positive cash flow?

[Russell Gronsky]

@Wendy Huang, I'll show a simple example that will hopefully show you why so many people prefer commercial multifamily over residential housing. Lets use your example of 10 SFRs vs a 10-unit apartment building.

Lets say your 10 SFRs are each worth 300k because all the nearby housing is worth that, so = $3M total. If you raise your rents $10 per month on each house, what will all your houses be worth? Depends on what the houses around them are worth. Even if you raise your rents $500 per month on each house, your properties will still only be worth what the houses around them are worth. Duplexes, tri-plexes and four-plexes are the same way.

The 10-unit apartment complex is worth....? Depends on how much NOI it produces and the CAP rate in the market. But here is where the cool part about commercial apartments comes into play:

Value = NOI/CAP rate

So, if the market CAP rate is 5%, which is true in many of the hot markets around the country today, that means for every $1 of increase to the NOI, the value goes up by $20!

So now just like you raised your rents $10 on each house, I raise rent by $10 on each apartment. But while your houses remained the same value, the value of my building just increased $24,000.

This is just 1 example of benefits. There are many, many more.

I hope this helps.