Let's talk about different real estate asset classes. This is a topic that’s often accompanied by the question, “What’s the best real estate asset to invest in?” It isn’t an easy question to answer because there are so many strategies.
There are fix-and-flips, short- and long-term rentals, co-living, PadSplits (these are single-family), multifamily apartments, duplexes, self-storage, mobile home parks, and even parking lots.
Generally, my answer leans towards multifamily apartments, but “the best” really depends on the market and the person. In today’s article, I’m going to compare and contrast some of these assets to help you understand the fundamentals of each.
Let’s do this.
Comparing Real Estate Asset Classes
There are 6 assets I’ll talk about in this article. They are:
- Renting out single-family homes
- Short-term rentals (like Airbnb)
- Self-storage and mobile home parks
- Industrial and warehouse spaces
- Hospitality assets (hotels, resorts, etc)
- Multifamily apartments
Single-Family Homes
The first on the list that we’ll talk about is renting out single-family homes. This is typically where most investors start out after reading books like Rich Dad Poor Dad and catch the “real estate fever.”
In the long run, they’re difficult to scale – meaning that the amount of work and effort put into the investment increases in proportion to the size of the portfolio. In other words, if one house takes 3 hours a month to manage, then two houses would need 6 hours, 4 horses would need 12 hours, and so on.
Single-family homes are relatively easy to finance and this strategy has one of the lowest barriers of entry. Other things to note: Acquiring additional mortgages can be a challenge.
Short-Term Rentals
The second strategy on the list is short-term rentals. These are normally single-family houses but are rented out on platforms like Airbnb. These “vacation rentals” can generate strong cash flow and similar to single-family rentals (SFR), have a low barrier to entry.
The biggest problems with Airbnb right now are regulations are constantly (look at New York) changing and demand is highly seasonal. In the right location, a well-maintained property can kill, but it requires hands-on management.
Self-Storage and Mobile Home Parks
Third on the list are self-storage and mobile home parks. This asset class has been slowly increasing in popularity for investors due to their growing demand (affordable housing) and lower maintenance costs.
However, since they are more “niche” strategies, they require specific industry knowledge to operate effectively. Many investors shy away from them simply because they don’t understand the nuances of managing these properties.
Industrial and Warehouse Spaces
Next are industrial and warehouse spaces. Both of these assets have seen high growth driven mostly by the rise of e-commerce – online shops need places to store their products. More specifically, the demand for distribution centers is stronger than ever.
However, similarly to self-storage, entering this space requires significant capital and market expertise. It’s a high-barrier-to-entry asset class that isn’t easily accessible to most investors.
Hospitality Assets (Hotels and Resorts)
Fourth on our list today are hospitality assets, such as hotels and resorts. These can also be highly profitable but are also extremely cyclical. During economic booms, they flourish.
People have the money to travel and need a place to stay. But during downturns – like ones with government-mandated quarantine – like the COVID-19 pandemic, can decimate the industry overnight. Hotels require strong operational teams and intensive management, making them riskier than other real estate investments.
Multifamily Apartments
The last asset on the list that we’ll talk about today is multifamily properties. Like I said at the beginning of this article, this is my personal favorite. Real estate should meet real needs, which apartments do well. They provide an affordable option for housing which is in high demand right now.
People always need a place to live, making apartments one of the most recession-resistant asset classes available. With the ability to force appreciation through better management and increased rental income, multifamily properties offer an accessible yet powerful way for investors to scale their portfolios efficiently. Unlike other multimillion-dollar assets (like storage or hotels), multifamily has a low barrier of entry similar to single-family housing.
Getting Started with Multifamily Investing
How is it possible that apartments have a low barrier of entry? It sounds like an advanced strategy, not to mention expensive. I used to think the same thing. That was until I realized that the only “barrier” was that I didn’t understand the fundamentals. Those fundamentals are:
- People need an affordable place to live. That’s demand.
- Investors need a safer alternative to the stock market that creates passive income
Obviously there’s a little more to it. You need to know a little more about apartments themselves, how to build a team (you don’t have to be an expert in everything), how to find deals, and how to raise money.
If you’re interested in building a strong foundation in each of these areas so that you can buy your first apartment building, then watch my free 1-hour apartment training on demand here.
I hope this helps.
To your success,
Michael Blank