Why We Chose Multi Family

So what is so appealing about MF investing that didn’t exist in SFH? That is a big question with an even bigger answer, but I will attempt to answer.

The FIRST thing that caught our attention is the value of a property is based upon the net operating income (NOI). This means if I can increase the income or decrease expenses, I can affect the value of the property. This strategy is called forcing equity. It is a huge advantage in the MF space. This strategy allows us to purchase a property, manage it correctly in order to increase the NOI, in order to increase our equity and purchase another property.
The next logical question we had was how do we increase NOI? An easy answer is to raise rent. I am not talking about unreasonable rent, but raising the rent to fair market value. Even if it’s only $25/month/unit. If we owned 100 units, we would earn an extra $30,000 a year and increase our equity by $300,000! Now that is forcing equity! The SECOND thing we found was that the effort to purchase a MF property was similar to the amount of effort it took to purchase a SFH. So why not purchase a MF just to get the advantage of forcible equity?
The THIRD and last big ticket item we found with MF is having multiple units to generate income. There will always be repairs and vacancies in real estate. Having multiple units to cover these expenses allows the property to remain profitable while taking care of these inevitable facts of real estate. It is an advantage you don’t have when starting out in SFH.
I started investing in 2012 at the age of 21. I had just read “Rich Dad Poor Dad” and it changed my whole mindset. From then until March of 2018 I was investing in single family homes doing all sorts of strategies from buy and rent, to seller finance and lease options. So why the big change in 2018?
We ultimately decided to changs our investment strategy from single family homes (SFH) to multi-family (MF). My brother / business partner and I had a conversation about our cashflow problems with the three different properties we had owned. For some reason we couldn’t seem to get much profit from our properties between repairs, vacancies, websites, lawyers, property managers etc. so we started brainstorming on how to solve this cashflow problem. MF investing was the answer. I can go on and on about the advantages of MF investing. I wanted to discuss what I think of as the “big ticket” advantages in MF real estate. In my next article I will discuss some other advantages to include:

1. Cost Segregation
2. Non-recourse lending
3. Tax deferrable
4. Scalability
5. High barrier to entry (less competition)

As always if you are interested in investing/partnering, or know someone who is, reach out to us!
If you want to learn more about our investment strategy, go to our section Partnering and Investing with us!
To your success, -Douglas Vogel www.BlueWaterREI.com [email protected]
#Multifamily #Investing