If you were given the option of between buying 8 single family rentals or one 18 unit apartment building, which would you choose? Many people invest in single family rentals hoping it will lead to financial freedom. Unfortunately, this is not always the case…and investing in single family rentals is a surefire path to financial mediocrity, rather than financial success. For commercial real estate investors looking to reach true financial freedom, we’ll discuss why they should instead invest in apartments (or multifamily) developments.
4 Reasons to Invest in Apartments Instead of Single Family Rentals
Four Reasons to Invest in Multifamily Developments over Single Family Rentals
Forced Appreciation only applies if you have five units or greater. Here’s how forced appreciation looks for apartment/multifamily development owners looks like compared to a single family rental:
If you have a single-family rental and you increase your rents $200, that’s great because now you have an increased cashflow of $200 per month. Unfortunately, this does not equal more value. The value of a single-family homes is based on what the other homes in the area have sold for, not the potential income it can generate. In comparison, in your ten-unit apartment building, when you increase the rent by $200 in just one unit, you have an increase of $2,400 per year and an increase in value. If you’re in a six-cap area, you take that $2,400 and divide it by 6% to determine your forced appreciation, which is $40,000. You just increased your property value by $40,000 on that one unit alone, and you have 10. That’s $400,000 of forced appreciation on your apartment building. Single family rentals just can’t compete with that.
Investors can Scale Faster
Investing in multifamily real estate is perfect for investors who want to scale their investment portfolio quickly. For comparison’s sake, it can take years to purchase 7 single family homes to be used as rentals, whereas investors can purchase a 20-unit apartment building in a matter of months. The answer is clear: investing in multifamily real estate allows investors to scale their operations much quicker than investing in single family rentals.
Consolidation & Efficiency
Similar to scalability, when investors choose to invest in multifamily real estate, they are able to consolidate maintenance and upkeep costs in one place. Would you rather pay 7 property tax bills or just one? Would you rather pay 7 insurance plans or just one? Would you rather worry about the roof maintenance on 7 homes or one building? The answer is obvious. Put simply, apartment investing is more efficient.
Higher Cashflow and Higher ROI
With apartment investing you will have higher cash flow and ROI and this will make a tremendous difference over the long term. Here is the difference between single-family rentals and apartments.
If you have a single-family home and your renter moves out, you have zero income. But your cashflow is not zero. Your cash flow is negative because you’re still paying utilities, insurance, and taxes while it’s vacant. Whereas in an 18-unit apartment building, you can have two or three vacancies and still have cashflow to pay the bills. You see the difference – over the long-term, there’s no comparison on what you can produce in cashflow and return on investments.
Casey Development, Ltd: Multifamily Property Developers in San Antonio, Texas
Circling back to the original question at the top of this post: if you have a choice between eight single-family rentals or an 18-unit apartment building, which do you choose? By now the answer should be obvious, the 18 unit apartment building! Casey Development, Ltd. has decades worth of combines experience helping investors make the right choices when it comes to developing multifamily real estate. Contact our team today to learn more.