All Forum Posts by: Sandeep Tyagi

Which Is Better For You?

Real estate is that one asset class that has consistently made people wealthy over long periods of time. However, for any real estate investor, the key to success is to find the right strategy that meets their needs and goals. Within the realm of real estate investing, the debate of multifamily vs single-family investments is a common one.

All the big names in real estate investing have their own opinions on the matter. Some, like Sam Zell, swear by multifamily investments. The answer, of course, is that it depends. It all comes down to your own personal circumstances and what you hope to achieve with your investment.

I personally feel more inclined towards multifamily investments as they've worked much better for me, but I'll lay out the pros and cons of each strategy so you can decide for yourself which route is best.

Multifamily, as the name suggests, are properties that have multiple units. These can start as small as a duplex but can go up to large apartment complexes. Duplex, triplex, quadplexes, and larger apartment complexes are all considered multifamily investments.

Now, the first question you might have is why would someone want to invest in a multifamily property? After all, doesn't that just mean more maintenance and headaches? While it's true that multifamily properties do come with more responsibilities, they also offer a number of advantages over single-family homes.

Spreading out Risk

The first advantage is that you're able to spread out the risk. Rather than putting all your eggs in one basket with a single-family home, you're now investing in multiple units. This means that if one tenant moves out or there's some sort of issue with one unit, you're not left high and dry. You still have the other units to offset any losses.

Higher Rental Income & Cashflow

This is because you're able to rent out multiple units rather than just one. This can be a significant difference, especially if you're investing in a larger multifamily property.

For example, let's say you're looking at a duplex that's for sale. The two units might rent for $1,000 each per month. That gives you a total monthly rental income of $2,000. Now, let's say you're looking at a four-plex that's for sale. The four units might rent for $750 each per month. That gives you a total monthly rental income of $3,000.

As you can see, even though the four-plex is renting for less per unit, the total monthly rental income is actually higher. This is just one example, but it shows how you can potentially make more money with a multifamily investment.

And if you're able to purchase the property at a discount, your potential returns could be even higher. For example, let's say you buy a four-plex for $400,000 that's currently valued at $600,000. You put 20% down ($80,000) and finance the rest ($320,000).

After a few years, the property value increases to $700,000. You then sell the property and use the proceeds to pay off the mortgage. Your total investment was $80,000, and you walk away with a profit of $220,000. That's a 275% return on your investment!

Of course, it's important to remember that real estate is a long-term game. You're not going to see these types of returns overnight. But if you're patient and smart about your investments, the potential rewards can be huge.

Easier Management & Lesser Maintenance Cost

As compared to a portfolio of single-family homes, multifamily properties often have a lower maintenance cost per unit. This is once again because the fixed costs are spread out over multiple units. The added convenience of having multiple units in one location is also a cost-saving factor.

For example, if you have a four-plex and one unit needs a new roof, you're only responsible for 25% of the cost. If you had four single-family homes, you would be responsible for 100% of the roofing costs for each home.

The same can be said for most other maintenance and repair costs. Of course, there will always be exceptions to this rule (a four-plex with all units needing new roofs would be an example), but overall, the maintenance costs tend to be lower with multifamily properties.

A single person or small team can often manage a larger multifamily property more easily than a portfolio of single-family homes. This is because the units are all in one location, so it's easy to keep an eye on things.

Scalability in Portfolio

It's simple math’s here. Getting fifty single-family homes is a lot harder (and more expensive) than getting a similar number of units in multifamily properties. So, if you're looking to grow your portfolio quickly, multifamily properties are the way to go. You can start small with a duplex or triplex and then move up to larger complexes as you get more experience (and capital).

If we track the journeys of some highly successful real estate investors, their rapid ascent to the top was often fueled by multifamily properties. Grant Cardone, for example, started with duplexes and then moved on to larger multifamily complexes.

Upselling Potential

With a single-family home, you're pretty much limited to just renting out one unit. However, with multifamily properties, you have the potential to upsell your tenants on additional services. For example, you could offer storage units or covered parking for an additional fee.

You could also offer laundry services or even a small gym for your tenants. The possibilities are really only limited by your imagination (and the zoning regulations in your area). The possibility of increasing revenue through upsells is a great reason to consider multifamily properties.

Recession-Resistant

While no investment is completely immune to market fluctuations, multifamily properties tend to be more stable than other investments, such as single-family homes.

This is because people will always need a place to live, even during tough economic times. So, while the prices of multifamily properties might not appreciate as much during a recession, they also won't drop as dramatically as other investments.

This stability can provide some peace of mind for investors who are worried about another economic downturn.

Now that we've looked at some of the benefits of multifamily properties, let's quickly touch on a few of the potential drawbacks:

Higher Entry Costs - The biggest drawback of multifamily properties is that they generally require more capital to get started. This is because you're buying multiple units in one transaction, so the price tag is going to be higher than a single-family home.

Less Personal Connection - Some investors prefer the personal connection that comes with owning a single-family home. With multifamily properties, you're dealing with more numbers and less of a personal connection to the tenants.

Now, let's take a look at the other side of the coin: single-family investments. Below, we'll discuss some of the benefits of investing in single-family homes.

Quicker & Cheaper to Rehab

If you're planning to flip a property, single-family homes are generally going to be quicker and cheaper to rehab than multifamily properties. This is because there's less square footage to renovate, so the project will be smaller in scope (and cost).

You also won't have to deal with as many building code violations, which can sometimes be an issue with larger multifamily properties. So, if you're looking for a quick flip, single-family homes are definitely the way to go.

Even for renting, single-family homes tend to have a much lesser cost for the entire property.

Lesser Capital Requirements & Easier Finance

Another benefit of single-family homes is that they're generally easier to finance than multifamily properties. This is because lenders tend to be more familiar with this type of property, so the financing process is typically quicker and simpler.

Of course, you'll still need a down payment and good credit to qualify for a loan. But, all things being equal, it's usually easier to finance a single-family home than a multifamily property.

Single-family homes generally require less capital to get started than multifamily properties. This is because you're only buying one unit, so the price tag is going to be lower. Of course, this also means that your potential profits will be lower as well. But, if you're working with a limited budget, single-family homes might be the way to go.

Greater Potential for Appreciation

While multifamily properties tend to be more stable, single-family homes generally have a greater potential for appreciation. This is because there's less supply of single-family homes on the market, so they tend to increase in value at a faster rate than multifamily properties.

Of course, this appreciation potential comes with more risk. If the housing market takes a downturn, you could see the value of your property drop significantly. This is because single-family units are valued according to the overall housing market, while multifamily properties are valued according to their income potential.

So, if you're looking for a property that will appreciate quickly, single-family homes are definitely the way to go. Just be aware of the increased risk involved.

Greater Potential for Appreciation Per Unit

While multifamily properties might appreciate at a slower rate overall, single-family homes have the potential to appreciate at a higher rate per unit. This is because there's only one unit to appreciate, so the entire property doesn't have to increase in value for you to see a good return on your investment.

Of course, this appreciation potential is not guaranteed. But, if you choose the right property in the right location, you could see some very impressive returns.

There are pros and cons to both multifamily and single-family investments. Ultimately, the best option for you will depend on your specific goals and needs.

If you're looking for a property that will appreciate quickly, single-family homes are generally the way to go. Whereas if you want an exponential return on your investment, multifamily properties are usually a better bet.

Of course, there are other factors to consider as well, such as your budget and the amount of time you're willing to spend on the property. But, if you're just getting started in real estate investing, these are some of the key differences you should be aware of.

Hello Everyone,

This post is to get your views on starting a new real estate video platform. Currently,  I don't see anything available in market where anyone can broadcast videos and podcast just for REAL ESTATE. For example-  we have quora for general discussion but our biggerpockets is specific for real estate and we all love it. On similar lines, we have many general video platform like youtube, tik-tok, facebook but nothing specific for real estate. I understand, it may be expensive and very niche category to build one but do you guys think its worth trying or any pros and cons or something in the past was tried on similar lines and failed? I have a feeling i am not the first one to think about this so trying to find out reasons why someone hasn't tried yet.

I am almost ready with the platform so would love to have feedback on desired features as well to understand what i have built is what market needs.

Can anyone please provide me some tenant screening tips for mobile homes as most of the processes we follow have worked for us in apartment building but those rules doesn't apply here.. such as having good credit erc. What other folks look for especially to rent/sell mobile homes?

 Thanks Tim, We asked for actual figure and bank statements etc (I also own around 80 apartment units so had little buying experience from there) but unfortunately owner didn't have anything. When we asked him for these documents, he even said that in 40 years he never deposited any rent money in bank (I think its the norm with mom and pop mobile home owners). We did research on area and we knew there are bad elements but i think we underestimated the problem (You know mind plays with us when we have already decided to do something especially when you have overconfidence on yourself ). In the past, i bought few apartment complexes and revived them so i thought i can do it here as well but it wasn't as easy as working in those apartments at a smaller scale  :(

Thanks for giving me inputs about repossessed homes, never thought about it. I will do some research as i have to see what if they bring trash homes or don't clean the trash they create... i don't want to create management headache. Regarding selling homes, i am working on it and able to sell 4 homes in last one month with rent to own option... so lets see how it goes.

 Lol.. No i am not afraid/scared of dealing with any kind of people.. Actually we have already done it and park is crime free now (Unfortunately the park i am talking about it is in Tallahassee city limit). During the process, we had to make sure that communication was always open with those people so that they don't feel threatened by us. i used to meet them once in 15 days to explain our concerns why we are doing it.. after first 1-2 meetings, once they understood our situation and realized how professional we were in communicating... things went easy. Most of the people left by themselves after 2-3 months and rest we evicted.

Thank you for looking into it Brenden.

This park was built in 1970 with around 200 lots and sold to individual owners. Out of those 200 lots, I bought 59 lots so on these 59 lots I own land as well as mobile homes (Even though out of 59 lots, only 36 lots have mobile home at this time). With city they are registered as individual lot but all my lots are together so you can say they are part of big parcel.

Thanks, Sandeep

Here I am going to write what all I did with the exact numbers (in $) and looking for expert comments on overall process and guidance on how to take it forward from here.

In 2020, I bought 59 lots in a mobile homes park (has around 200 total lots so around 140 lots are primarily owned by other individual primary owners) for $430k . This park is in my local area Tallahassee, FL. My buying reasons were:

Positives:

1. Out of 59 lots, 36 lots had mobile homes ( from 1980’s) but only 18 were occupied.
2. Area is within city limit, close to a gas station, dollar general, church, bus station. With-in 2-3 miles we have 2 big university with around 75000 students combined. 70-75% jobs are related to either university or various government departments. City has around 300k populations and population growth is 3-4%.
3. All the lots have city water and sewer, but road is private. City road ends at park entrance.
4. Considering the land price, infrastructure setup cost each lot cost was coming around $7300 which was very attractive even though most of the houses on them were old and needed good repairs.
5. All other lots except the 59 were in considerable good condition and our due diligence showed that whole park value is going down due to these 59 lots mismanagement for 40 years.
6. As per owner rent collections were around $7200 per month and most of the tenants were very long term (average rent $400 per home) which he receives in cash so bank rolls available to validate.
7. As per our estimate, each house needed 7k to 8k repair to make it livable.

Negatives:

1. These homes/lots were owned by same owner for 40 years and he neglected everything which includes tenant quality, infrastructure (such as overgrown trees, bad homes still in the park which should have been removed years back, 3ft- 4ft potholes on the road since its privately owned).
2. Most of the tenants were convicted or had some big felony, these houses were famous for drugs cartels in whole city.

After buying we realized things were way worse than what we assumed in due diligence:

1. People staying there actually were involved in gang wars, prostitution, drugs etc. Crime was way more than it was shown in city database as most of the things were never reported.
2. Actual rent collection was only $4200 by 18 tenants
3. Park had very bad repo in area (Which was known to us)

What we did after buying:

1. Worked on road (new milling road), removed extra trees, cleaned 40-50 dumpster of trash.
2. Worked with city development agencies to remove bad tenants via evictions or stationed police officers on weekend to deteriorate drug traffic, incentivized good tenants to provide us video /call cops with videos so that cops visits are frequent.
3. Removed bad homes and brought in 7-8 newer homes from other parks.
4. Repaired around 19 houses in last 18 months and brought up average rent $680 per home. As of today, total rented houses are 28 with around $19000 monthly rents.
5. Park repo improved, and average time to rent a house now is 2-3 days. Our tenant’s selection criteria are No eviction, No felony in last 7 years and household income at least $2500. All tenants are on lease and now there is almost zero crime.
6. Our repair cost assumption was wrong, and we ended up spending $15-$18k on each house to repair and bring it to rental condition.
7. After buying, we have spent around another $475k to bring the income from $4200 to $19000 and for various cleanups.

Currently, I have following issues:

1. On an average, we are having around 15% evictions and around 30-35% tenants do not pay before 5th as stated in lease, but they do pay with late fees and lot of follow-ups. This increases management cost.

So my question to experts are:

1. In overall process. What mistakes I made or things which could have been done better?
2. This place still has around 5-6 homes which needs to be repaired and rented, and around 21 empty lots which needs home. Any idea to get homes cheaper considering I can’t get more than $750 so buying brand new home may not be a good idea.
3. How can I reduce eviction rate and bring tenants to pay by 5th of every month (I am thinking about selling the homes to residents and collect lot rent but most of the residents can’t afford to $12k outright for homes and I am not sure rent to own or owner financing is allowed for 28 homes by government). Lot rent in the area would be $375.
4. Any other way to increase income?