Multi Family Real Estate Investing: Debunking the Myths

There are so many questions which have raised serious debates among real estate investors and other real estate experts. One of them, no doubt, is whether one should invest in single family homes or multi family properties. Many fans of single family investment properties often tend to overvalue their advantages and come up with false claims about multi family homes. Indeed, some seriously wrong myths about multi family real estate investing have been circulating the real estate investment world for the past years. Well, it’s now the time to debunk these myths about multi family real estate investing and see why it could be a fully viable investment option for some investors:

1. It is too expensive

One of the main reasons which pushes many real estate investors from potentially profitable deals in multi family real estate investing is the claim that it is way too expensive. Technically that’s true because you can find a single family house for as little as $100,000 in many locations cross the US, while the price of an apartment building could reach well over a million. But think about it carefully. If you buy a 20-flat building for $1 million (which is absolutely feasible), that’s an average of $50,000 per housing unit, or half the price per unit of the house discussed above. That means that multi family real estate investing is actually (much) cheaper per housing unit than investing in single family homes.

2. It is harder to finance

Another reason why many real estate investors stay away from multi family real estate investing is the claim – or even myth – that it is harder to finance than the purchase of a single family rental property. True, it’s one thing to pay $100,000 for a real estate property and another thing to pay $1 million. But again, let’s be realistic here. How many people can actually take a million out of their pockets (or bank accounts) to buy an investment property fully in cash? I would say – very, very few. So, in both cases – whether you go for single family or multi family real estate investing – you will in most cases need to resort to taking a loan from a bank. Believe it or not, it is in fact much easier to be approved for a mortgage on a multi family property – as expensive as it can be – than on a single house. Why? Because investing in multi family homes is considered safer and more secure. We will see why below.

3. It costs more to own and maintain

Of course multi family real estate investing requires more costs and expenses than buying and owning a single family house. Here we talk about owning, managing, and maintaining 10, 20, or maybe even 50 housing units, each with its own characteristics and needs (though these will be somewhat similar as long as the units are located within the same building and complex). But remember – while owning a multi family property will cost you more on monthly and annual basis for the entire property, the cost will actually be lower per housing unit than in the case of a single family house. A myth that’s true about multi family real estate investing is that it requires professional property management. After all, unless you leave your full-time job and give up on sleep, it will be impossible to serve 20 or 50 housing units. But professional property management is not a bad thing in real estate investing. Professionals managers are likely to save you money – in addition to your sanity – as they have access to various discounted products and services which you don’t.

4. It is less profitable

No, multi family real estate investing does not need to be less profitable than investing in single family rental properties. It all depends on how you look at it. A multi family property will generate more rental income and thus more cash flow because you rent out many housing units instead of just one as with investing in a single family property. If you look at the rental income and cash flow per housing unit, then a house will bring you more than an apartment building, but remember that you would have paid much less for a unit in a multi family property than in a single family property. This leads to the fact that overall multi family real estate investing tends to bring about much higher cap rate than houses or condos.

5. It is harder to keep occupied

When going for multi family real estate investing, you will be responsible for finding multiple tenants rather than just one. This will take a lot of time and efforts from any real estate investor and landlord, so it is rather difficult to keep your entire property occupied at all times. However, think about the following scenario. If you own a house as your only rental property, once you are unable to find a tenant, even for just a month, this is a large problem because you will make zero rental income, while your cash flow can easily turn negative. At the same time, when you own an entire apartment building as your investment property, even if you have one or two of your housing units vacant for a couple of weeks or months, you will still be collecting rental income from the other tenants and having positive cash flow. Thus, the vacancy rate is not such a large issue in multi family real estate investing as in investing in single family properties. This means that multi family properties are safer and more secure real estate investments, as mentioned above.

6. It is more difficult to diversify your real estate investment portfolio

Many real estate professionals claim that real estate investment portfolio diversification when going for multi family real estate investing is hard. Their claim is that once you’ve bought a million-dollar property, it will be long before you are able to affording purchasing another rental property. There are two things which need to be considered here. First of all, owning a multi family property already means that your portfolio is diverse because you have multiple housing units, each with its own tenants, rental income, expenses, cash flow, cap rate, CoC return, occupancy and vacancy rate, etc. Second, it’s already been mentioned that multi family homes generate more rental income and cash flow for their real estate investors, which means that it will be easier and faster to pay off their mortgage and save up enough for a second investment property. Moreover, banks are more likely to give you a loan on a multi family income property as it is safer. Actually there are many investors across the US who own hundreds or even thousands of housing units within multi family buildings.

7. It is hard to rent out

No, it’s not. While most tenants would prefer the comfort and privacy of a single family home (especially families with little children), not all tenants can afford this luxury. In addition, there are those who just prefer living in an apartment. Multi family real estate investing is meant to cater for the needs of the latter two groups, and there are plenty of them in the market. As Baby Boomers are retiring and millennials are abstaining from buying homes, the demand for housing units within multi family properties is likely to remain high and even go up.

Whether you invest in single family properties or multi family homes is partially a matter of personal preference. However, since you are a real estate investor, the return on investment should be the driving force in your investment decision. Thus, you need to perform careful investment property analysis every time before you go for single family or multi family real estate investing. The best way to do that is with a rental property calculator like Mashvisor’s one.

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