- Diversification, avoid the stock market "Roulette"
- Hedge against inflation
- 85% of American millionaires made their money in real estate
- Tax advantages / Tax strategy tool
Why Invest in Real Estate?
Now, Why Invest in Multi-Families?
• The first advantage is cash flow. Cash flow on a multi-family (= apartment complex) is always greater than that of a single family. Simply because you have more rents coming in.
And the more units you have under one roof, the less risk you have. If you have a single-family house and you lose your tenant, you’ve lost 100% of your income. In some instances, this could be your entire profit for the year. If you had a three-family and lost a tenant, you still have two rents coming in to pay your expenses.
• Economies of scale are in multi-unit buildings. If you have six single family houses opposed to one six family, you have six roofs to be replaced or repaired, six lawns to be maintain, six tenants spread out through out the city. In your six-family apartment complex, you only have one roof, one lawn and your ten tenants are centrally located. Economies of scale are in your favor.
• There’s a lot less competition in buying multi-families than there are in single-family homes.
• Because of the bigger cash flows, you can afford to hire management companies to manage the tenants, thus eliminating that hassle while you go out and look for more investment properties = apartment complexes to invest into.
• Your pay day is a lot bigger when you finally sell your property. An apartment complex costs more than a single-family home, and because of this, they obtain a greater dollar amount of appreciation. For example, in a market that appreciates 10%, a $100,000 single-family house will be worth $110,000 while a three-family house worth $300,000 in the same market (10% appreciation) will increase to $330,000. That’s $20,000 more money in your pocket in one transaction!
• The value of a commercial property like an apartment complex is based on the revenue it generates, unlike single-family homes which are based upon “comparables” and market conditions. If the houses around your house were foreclosed upon and sold again for a very low price by the bank that wanted to unload them, then the value of your house is being brought down. Multi-family property values are based upon the property’s income and expenses, which tend to be more controllable and predictable.
• Rehab, cosmetic /physical improvements and better management can have a greater impact on the value and cash flow of a multi-family than on a single-family house.
You probably know a few people who have made a lot of money flipping single family houses, but if you look up people who have become extremely wealthy through real estate, you’ll realize that they did it through owning commercial real estate like multi-families (apartment complexes).
These are the biggest advantages to investing in multi-families, but there are many, many more.
If you are interested in creating more wealth at a faster rate, adding multi-families to your portfolio is the way to do it!
(A big Thank You note to David Lindahl for his good article "The 5 Money Making Advantages Of Multi-Unit Investing" on which this article is based)