DONT BE STUCK IN SINGLE FAMILY HOMES FOREVER

Multi-Family and Apartment Investing
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DONT BE STUCK IN SINGLE FAMILY HOMES FOREVER

Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes

Most big time investors tell you to skip SFH and jump straight to multi -units. If you have the stomach to invest at least $100k in your first real estate deal without any knowledge and extensive knowledge then go ahead. You're better than me. Even if I had a trusted mentor, it's difficult for me to trust him. with hundreds of thousands of dollars without me knowing what's going on.

On the other hand , I suggest new investors to first start with SFH. SFH will teach you the basics of real estate. It will teach you the acquisition, due diligence , rehab, marketing, and refinance process. It will teach you how to manage your team and how to respond to tenant requests .

However, the secret is not to be comfortable being content staying in SFH.

I have had so many experiences with SFHs. I've had everything from flooding to burglary. SFH only has one income stream. So when something happens like a water heater leaking or burglary you will pay out of pocket if the rent is not enough to cover the expense.

However, in apartments if a major expense happens in one unit you have 20 other units to cover the expense and put cash flow in your pocket.

Some investors value equity over cash flow. They argue "I love SFH because the equity grows faster than equity of apartments. I think this so silly. I have one question for those thinking like this. Can I buy food with equity before I sell the property? Yes or no?... OK then .

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y

Both are profitable strategies...just depends on your goals.  I started with singles and small multi's but that was not going to work long-term.  It would have taken me an eternity to source 30 SFRs; so, I bought a 30 unit community instead.  Also, sourcing and managing 30+ individual properties is the polar opposite of my goal for more control and freedom.

Managing one 30 unit property is exponentially easier than 30 individual properties but it still comes with it's management challenges.  Going larger and having on-site management and maintenance and commercial vendors is the most effective solution.

Regarding the vacancy and major expense argument, that one does not hold water.  Having 100 SFRs vs 100 units in an apartment community both provide insulation from vacancy and major expenses in one or a handful of doors.  It's the benefit of scale in either strategy.

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  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    Jason, I grew up in La Crescenta, which is right down the road from you.

    I do both single family rentals and apartment buildings.  Apartments are superior in that you can scale up your business quickly and you have efficiencies such as only one roof system.

    In my market, single family rentals have very strong demand to rent them.  Plus tenants end up staying around seven years on average.  I also have less defaults and less drama.  But way more repairs per unit.

    For most smaller investors, rental houses are a good start.   To make a full time living at cash flow properties, apartment buildings are the way to go.

    In markets like yours in SoCal, rental houses would result in a loss if you put a mortgage on it.  Even apartment buildings have meager cap rates in SoCal.  The real estate is simply too expensive.   

    8Reply
  • Jordan Burnett
    Investor · Alpharetta, GA · Member since 2019 · 78 posts · 74 votes
    6y

    I sat on the sidelines in SFH for years. I always wanted to get started in SFH but could never shake the feeling that I was just purchasing myself another job and another person who would be calling me some time of day to get something fixed. Even with a property manager on a SFH, you still get calls from the property manager or contractors when something comes up.

    Apartment investing/syndication investing in general definitely has more overhead and fees than SFH investing. However, in my mind, the fees are absolutely worth it. They're not like fees of a financial advisor where they're taking 1-2% off the top and will have little to no impact on your market returns. They're fees to "handle the calls" and deal with insurance, property management, legal claims, etc. Apartments are set up like a traditional business, because they are traditional businesses.

    It's also much easier to scale your investing by simply networking and vetting with a few sponsors that you like. A few sponsors will give you access to dozens of deals that are likely in dozens of geographies. With 4-6 relationships you can have a portfolio of investments throughout the U.S. and have partial ownership in hundreds or thousands of units where those sponsors are experts in the local market. When I tried to do the same in SFH rentals I found myself overwhelmed by thinking I had to drive to that area, look around, know the particular street/neighborhood/flood plains/etc.

    4Reply
  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    6y

    @Jason Malabute

    Excellent post and I agree with your thinking.

    I do believe in taking investing step by step, gaining hands on experience, and building a solid foundation of knowledge and expertise. I understand others believe go big go early and that is fine, that’s their opinion.

    I may be a little slower than most but I am now transitioning my single family rental portfolio into larger multifamily properties both as an LP and GP.

    There is good rationale and logic behind the thesis multi family properties are the way to go - to scale up and accelerate one’s path towards financial freedom.

    Good luck with your investor evolution!

    Arn

    [email protected]650-575-6114
    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y

    Both are profitable strategies...just depends on your goals.  I started with singles and small multi's but that was not going to work long-term.  It would have taken me an eternity to source 30 SFRs; so, I bought a 30 unit community instead.  Also, sourcing and managing 30+ individual properties is the polar opposite of my goal for more control and freedom.

    Managing one 30 unit property is exponentially easier than 30 individual properties but it still comes with it's management challenges.  Going larger and having on-site management and maintenance and commercial vendors is the most effective solution.

    Regarding the vacancy and major expense argument, that one does not hold water.  Having 100 SFRs vs 100 units in an apartment community both provide insulation from vacancy and major expenses in one or a handful of doors.  It's the benefit of scale in either strategy.

    12Reply
  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    6y

    @Mike Dymski


    Agreed, took me 40 years to figure this out. 😀

    [email protected]650-575-6114
    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Arn Cenedella:

    @Mike Dymski


    Agreed, took me 40 years to figure this out. 😀

    I get humbled constantly on the things it takes me way too long to figure out.

    0Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Jason Malabute

    I see this debate a lot of BP.  It all depends on your goals what type of investor you are.

    I have many SFR; easy to self manage, longer term tenants, higher cash flow per door, very few calls on maintenance as many just fix things themselves and much faster to exit (sell). I have small multi-units as well. The small 4 unit buildings take way more maintenance and management then the SFR. I understand the comment regarding replacing roofs and boilers. The cost is less than a commercial building by far. The vacancy of one SFR unit versus a multi-unit I agree, but if own multiple SFR a one vacancy is no big deal.

    The strategy whether you buy multi-units or SFR is a personal choice. I've seen people with over 100 SFR. You can finance many properties of SFR.

    Just throwing in the other side of the argument.  
     

    8Reply
  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    6y

    @Mike Dymski

    Hey, at least we are in the “game”.

    Experiential learning is so far superior to book learning.

    As the famous ad says: Just do it!

    In my case, I learned by watching my father build wealth and financial freedom buying one SFR at a time. He was totally old school. Hal never went to multifamily and instead expanded to multi tenant office buildings. His approach worked for him and there was no reason for me to reinvent the wheel. It's worked for me too. No regrets. I have a Good Life due to RE investing. I'm at a different stage of my life now and therefore changing my strategy. Even at my age of 66, I have another 30 years to go and I'm excited to learn a new facet of the RE business especially one that fits my needs better than managing dozens of SFR rentals! It's fun, keeping learning new stuff and one (hopefully) stays young or at least not as old!

    [email protected]650-575-6114
    4Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Funny but so much of this discussion really depends on your market. In my market (Marin County CA), a 3 or 4 SFR in decent condition will typically gross $60,000 to $90,000 in annual cash. Fully paid off, the net is somewhere along the lines of $50,000 to $75,000 as property taxes are pegged to the purchase price and increases are limited by law. You do not need to collect 20-30 of these houses to make a nice living.

    In a market where you need 20-30 $100,000 homes to scale up to decent numbers, multi's are plainly the way to go.

           

    1Reply
  • Account Closed
    Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    6y

    @Mike Dymski when did you make the jump from SFH to MFH? I am trying to gauge how much I need in reserves. I'll likely have to house hack a four plex in order to make the jump so as not to tie up all my free cash.

    In simpler terms....is there a rule of thumb for reserves vs. purchase price? Also, what is a comfortable DSCR when just getting started?

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    @Jason Ma

    For smaller time investors like me, single family properties work great. I only have 10 and will cash flow 12k/month when they’re all paid off in 12-15 years. Right now the cash flow is only 4k/month after expenses. For those who could use an extra 10-15k/month in retirement, SFRs work perfect for a few reasons. Turnover rates are way less which is my biggest reason. I don’t want to have to turnover a unit every 2 years or less. No thanks. I would rather have someone in there for 10+ years and not have to deal with constant turnovers every two years. I would rather have people stay for many years in my properties. And you don’t have disputes between tenants in single family. Again, no thanks. And they are really easy to self manage. I get maybe one text every couple months with some minor issue. But for people who need more than 15-20k/month, go big with multi family. But I bet the majority of investors on here can survive off less than 200k/year in passive income. And most don’t want all the headaches with higher turnovers etc.

    4Reply
  • Aaron Ross
    Contractor · Williamsburg, VA · Member since 2020 · 24 posts · 4 votes
    6y

    @Jordan Burnett

    What is a sponsor?

    0Reply
  • Aaron Ross
    Contractor · Williamsburg, VA · Member since 2020 · 24 posts · 4 votes
    6y

    @Mike Dymski

    What is syndication mean?

    0Reply
  • Aaron Ross
    Contractor · Williamsburg, VA · Member since 2020 · 24 posts · 4 votes
    6y

    @Mike Dymski

    What is syndication mean?

    0Reply
  • Jai Reddy
    Edmond, OK · Member since 2012 · 456 posts · 270 votes
    6y

    @Aaron Ross

    Search for those terms in the podcasts or forums

    1Reply
  • Jason MalabuteBusiness Member
    OP
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes
    6y
    Originally posted by @Brian Ploszay:

    Jason, I grew up in La Crescenta, which is right down the road from you.

    I do both single family rentals and apartment buildings.  Apartments are superior in that you can scale up your business quickly and you have efficiencies such as only one roof system.

    In my market, single family rentals have very strong demand to rent them.  Plus tenants end up staying around seven years on average.  I also have less defaults and less drama.  But way more repairs per unit.

    For most smaller investors, rental houses are a good start.   To make a full time living at cash flow properties, apartment buildings are the way to go.

    In markets like yours in SoCal, rental houses would result in a loss if you put a mortgage on it.  Even apartment buildings have meager cap rates in SoCal.  The real estate is simply too expensive.   

    I actually invest in Indy. Ps I live a block away from CV now. 

    Where do you invest in?

    Malabute & Company CPAs525 Reviews
    WebsiteView Page
    0Reply
  • Jaquetta T Ragland
    Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
    6y

    @Jason Ma thanks for the advice. How do you find multi families to invest in?

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    @Jason Ma    I invest mostly in the Chicago region.  And I live there.

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    I like the 3/4 units a nice mix between sf and commercial with many of the benefits of both. 

    1Reply
  • Jon K.
    Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes
    6y

    So for those that made the switch, what advice or guidance do you have for those that want to make the transition? Besides the obvious "search the forums", since there are so many of you here on this one thread what can you tell us?

    0Reply
  • Brian Alfaro
    Multifamily Syndicator · Houston, TX · Member since 2018 · 188 posts · 192 votes
    6y

    Great post! 

    I agree with what most are saying on here - it really depends on your goals. Of course you can build wealth through investing in SFH. It just takes longer. Cash flow you can live on is also achievable, but if you consider the average person is using leverage you need a lot of SF roofs to say make $8-10k per month (not luxury living, but comfortable) in passive income. If you have a great job that you love and you want to ride long-term appreciation of your single family rentals even though you know there are going to be headaches with R&M and turnover costs, that's okay!

    On the other hand, if you want to scale faster, MF is definitely the way to go. I transitioned into MF after reverse-engineering my goals I want to accomplish before I turn 35 and 40. There was no way I could do it buying SF homes cash flowing $150-200 per door after setting aside expenses for CapEx, OpEx, etc.. I also did enough in the SF space to experience one big problem at a rental killing 2-3 years of cash flow.

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    6y

    How does a person make the jump to multifamily? I’m not talking about 2 to 4 unit buildings. I’m talking about apartments. I have quite a number of single-family houses I’m getting paid on. Many posters say just cash them out and buy an apartment, but that’s easier said than done. Also with being self-employed and have been for most of my life I have a greater challenge with getting loans. I am not interested in being a LP on somebody else’s Syndication. I know the people that’s always indirectly trying to raise money talk about how you’ll be further along by being a LP, but they have an agenda to promote that idea.

    2Reply
  • Steve Mandelbaum
    Developer · Jacksonville Florida · Member since 2015 · 57 posts · 39 votes
    6y

    On a like for like comparison, SFH is far superior. What SFH lacks is the ability to scale quickly. It would be difficult to buy 100 sfh at one time. At this moment, the multifamily asset class is hot, prices are being bid faster than sfh. As it offers scale it also binds you to the property. They are not easily sold, there are very few buyers in the market. The multi-family market has significant gaps. Some properties are to large for individual investors and not big enough for institutional money creating a thin market. SFH is appealing to both investors and homeowners.

    The tenants and rents are superior all things being equal. People would rather have their own space and not have neighbors on all sides. Tenants who move into SFH generally stay longer and have fewer turns.

    Multi-family also suffers from common use costs, trash, lighting, security cameras, landscape.

    To automatically discount SFH as simply a stepping stone is short-sided. Given my choice, I would own 100 sfh than a single property with 100 units.

    2Reply
  • Aaron Ross
    Contractor · Williamsburg, VA · Member since 2020 · 24 posts · 4 votes
    6y

    @Jai Reddy

    10-4

    0Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    6y

    We do SFR and have no desire to move into multi-family. I think taking an approach of "this way is the best way" is an opinion and not one that's shared by everyone.

    4Reply
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