You may have seen a recent article in the New York Times about how investors are moving away from single family homes toward multifamily.
Why is that?
If you’re new to real estate investing, should you skip the traditional step of starting with a single family property?
It used to be that when people got started with real estate investing, they would begin by buying single family homes to flip or rent. In fact, that's how I got my start. I went from flipping pizzas to flipping houses.
Over the course of three years, I bought and flipped over three dozen single family homes and I made a lot of money. But you know what? I also spent a lot of money, and frankly more time away from my family than what I would have liked.
Just as I was starting to get burned out on flipping houses, I discovered multifamily investing, and the rest, as they say, is history.
If you're looking to get started with real estate investing, do me a favor, don't buy into the old way of thinking that you have to start with single family homes. Take it for me, skip that step and head straight into multifamily.
FIVE REASONS WHY YOU SHOULD INVEST IN MULTIFAMILY
#1 Multifamily Investments Are a Safe Bet
When it comes to real estate investing, putting your money in multifamily is a safe bet. If the great recession of 2008 taught us anything, it’s that multifamily investing is recession proof.
Why? In 2008 more than 3 million foreclosure notices were issued to American families. That's one out of every 54 homes across America. Where did these families go? Many downsize their life and their monthly cost of living by moving into apartments.
If you were a single family investor during this period, your investment was seriously at risk. People lost millions during that time because they were so dependent on the market.
Suddenly, people were losing their homes, not buying homes, and forced out of their homes due to foreclosure. They certainly couldn't afford to rent a similar home at twice the cost.
History has shown that multifamily investing is the safest real estate investment you can make, Even today with COVID, while other asset classes like office and retail are badly hurting, multifamily is thriving and cash flowing.
People will always pay to keep a roof over their head, and for many people, multifamily is the most cost effective way to maintain their lifestyle. In fact, you can't build any more affordable housing these days.
#2 Multifamily Investing Offers Great Returns
Multifamily investing offers a greater return on your investment than most other investment vehicles.
I love flipping houses, it’s great fun, but the truth is, you have to buy and sell or buy and manage a lot of single family houses in order to earn the consistent returns offered with multifamily investing.
Plus, if you're not buying, fixing, and selling houses, you're not making money, and when you do flip the house and sell it, the money stops flowing.
Multifamily syndications routinely provide average annual returns of 10% or more. That’s compounded without the volatility of the stock market and accounts for fees, inflation, and yes, even taxes.
When you get gains in real estate because of depreciation, you actually pay very few taxes. If you use tax deferred strategies like a 1031 Exchange or Delaware Statutory Trust, you can defer paying taxes forever.
So, above average returns, no volatility, high performance during the Great Recession, and tax advantages.
(There are a few ways to calculate the return on multifamily real estate, which I've laid out in another video called the Potential Returns of Multifamily Real Estate.)
You might be wondering, why does multifamily offer a better return on investment than a single family rental?
I can't speak for other investment firms, but at Nighthawk Equity, we're able to offer a great return because of our investment strategy. We prefer to buy older properties or properties that are not performing as high as some others in the area. We renovate those, and make them nice, shiny, and modern, like some of the other apartment buildings, and we slowly start raising the rent.
With a single family house, even if you're doing a flip or renovation, you're really at the mercy of comparable rates. If you renovate a house and like it did in 2008, the market starts going down, it doesn't matter how pretty it is, because the market is going down. It’s completely outside of your control.
With multifamily, to a large degree, you can affect and control the value of your property by increasing the income. The higher the income of a multifamily property, the higher is its value. Money isn't the only return that's greater with multifamily investing. It also offers a larger passive component than single family property.
#3 You Control Your Time and Cash Flow
If you invest in single family, you're probably landlording. You're probably managing those properties yourself, and that’s time intensive.
As a passive investor in multifamily deal, you aren't spending your time finding properties, fixing up dealing with tenants, and then selling them. Instead, you're leveraging the knowledge and time of expert operators, like us, for example, who takes those steps for you, but with larger commercial properties that are more stable and professionally managed. All they ask is that they use your money.
All kidding aside, when you have money to invest, you're looking for the best place, and there's no better place to invest passively than in a multifamily real estate syndication, because you're exchanging your money for not only more money, but also time.
You're controlling your time and the cash flow you're getting from those investments.
This is exactly why so many busy professionals that want to invest in real estate choose to do so via multifamily syndications, rather than say, investing in flipping or managing single family houses or even investing in turnkey properties.
In fact, I recently interviewed the star of the show Flipping Boston, Dave Seymour. He left flipping houses to move on to invest in multifamily, and that's all he does now. You can learn more about his story on my podcast.
#4 Your Risk is Limited with Multifamily Investing
Liability, or rather, the lack of it.
With multifamily, your risk is limited to the amount of capital you invest. If you invest in a single family house, you could lose not only your value in it, due to some kind of foreclosure, but you also have legal liability if there's a lawsuit. As a limited partner in a real estate syndication, the law actually protects you from more liability than what you invest.
#5 Take Advantage of New Multifamily Market Trends
There have been big shifts in the real estate market over the past 20 years due to the housing bubble burst of 2008 and the rise of mixed use properties over the past decade.
There are always new trends and opportunities in real estate, and one trend that's starting to take off now is a reimagining of commercial properties in suburban areas. What does that mean exactly? If you think of traditional mixed use development you'd imagine brand new apartment residents that sit on top of retail shops and restaurants.
These are typically what's called classy developments in emerging areas of town that cater to those who prefer a turnkey lifestyle, like retirees and Millennials.
This year, Coronavirus revealed the need for more practical amenities for residents of these developments, access to things like pharmacies, small grocery markets, and even emergency rooms.
These trends are leading developers to reimagine mixed use multifamily retail in suburban areas and they need investors to help them bring their visions to life.
There are some major risks with investing in brand new class A properties. In fact, I wrote an article about this called Why You Should Not Invest in Classy Real Estate, so make sure you check that.
But let's be clear, brand new developments aren't the only opportunities available for investment. In suburban markets, there are plenty of valued opportunities that just need to be discovered and given some TLC. That’s what my firm Nighthawk Equity specializes in.
So once again, the real estate market is changing and multifamily has become the property of choice, not only for the novice, but also expert real estate investors.
We talked about the five reasons behind this, including the number one reason – less risk. Number two is greater return on your investment. Number three is you get to control your time and cashflow. Number four, less liability. Number Five, is the ability to take advantage of new market trends.
Of course, the best time to start investing in real estate was 20 years ago. The second best time is right now. So what are you waiting for?
If you're new to investing in multifamily real estate, check out my Complete Guide to Real Estate Syndications for Passive Investors to learn more and see if multifamily investing is right for you.