Why should I invest in multifamily?

[John McKee]

I'm a seasoned retail real estate investor but I don't know anything about multifamily.  What are the advantages/disadvantages compare to other types of real estate investing.  What's your niche?  Is it a four flex, or a 50 unit building?  Hit me with your knowledge!

[Greg Scott]

Reasons I like multifamily vs retail

• I have a more diverse customer base.  In a large apartment, if one resident moves out, I'm not too worried.  In most cases that I can think of a retail tenant makes up a larger portion of the total building rent.
• Leases are shorter, so I can capture additional revenue when rents rise.
• Everyone needs a place to live, but not everyone needs to go to a retail store any more.
• When times get tough, like during a pandemic, is the government more likely to help people or stores pay their rent?
• With all the bathrooms and kitchens, the value of the land is a lower percentage, so more can be depreciated.
• Residential buildings can be depreciated faster than commercial, to shield a higher amount of cashflow from income.

Aside from the above list, multifamily shares a lot of the same real estate benefits as retail, including the ability to drive income and appreciation through your own efforts.

FWIW, a fourplex, triplex, duplex are a strange area of overlap between single family and true multifamily. They are valued based on comps and not NOI / Cap Rate, so you lose the ability to drive appreciation, and if you cannot find good comps, they can be hard to refinance or sell.