edited in 2021
I previously wrote a post on real estate vs stocks. There I compared the two asset classes so I will not be discussing stocks in this post. Here I will discuss the advantages of multifamily properties vs single family properties. As the name implies multifamily is any property with more than one unit while single family are residential properties with a single unit. Multifamily is also separated into commercial (5+ units) or residential (2-4 units). As an investment vehicle, single family has a lower barrier of entry with a median home price of $320,000 in 2020, while multifamily usually cost many times that. Although, the barrier of entry is higher on multifamily there are many benefits to investing in this investment class.
Economies of Scale
Real estate is much like everything other kind of merchandise, you get discounts for when you buy in bulk. This is true on the price per unit for closing costs, insurance, repairs, maintenance, property management, and the list goes on.
Easer to Finance
You may think this is false since the cost of a multifamily building is many times that of single family homes and thus it must be harder for a bank to finance, but it is absolutely 100% the truth. Multifamily real estate consistently generates cash flow making it a very safe investment. Banks will even lend on just the property alone and not require personal collateral on commercial properties (nonrecourse loan) if they believe in the business strategy.
Amenities
Generally, multifamily properties will have a pool, lounge, gym, and community events for their residents. While this is possible for a single-family home it is typically a rare case and only on higher end rentals.
Professional Management
For multifamily properties with 30+ units, there is usually an onsite staff for leasing, showings, and maintenance. While for single family rentals this is impossible since there is no space allocated for such professional management.
Forced Appreciation
Commercial multifamily (5+ units) are priced by their net income generated. Therefore, value can be created by increasing income and or decreasing expenses. While a single-family home’s value is dictated by market forces. Bottom line, multifamily real estate is more difficult to get into due to its daunting higher costs, but it is also highly rewarding for those who are willing to take the plunge. There are also multiple strategies that can be employed by multifamily investments that are unavailable to single family residential. This allows for accelerated wealth growth with multifamily compared to single family investments.
Bottom line, multifamily real estate is more difficult to get into due to its daunting higher costs, but it is also highly rewarding for those who are willing to take the plunge. There are also multiple strategies that can be employed by multifamily investments that are unavailable to single family residential. This allows for accelerated wealth growth with multifamily compared to single family investments.
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