by | 19, Feb 2022

Single-Family VS Multifamily Investing

We’ve got another showdown this week! Are you ready to watch the big fight this Saturday?

Single-Family investing VS Multifamily Investing!

I know, I know… we’re biased. We do love our multifamily investing! But in this episode, we really tried our best to give Single-Family investing a fair shot.

Dan and I go back into the ring, in one corner: Single-Family Investing. And in the other corner: Multifamily Investing.

How are they different, what are the pros and cons of each?

We will talk about these things…and more in another episode of Multifamily Investing Made Simple, In Under 10-Minutes.

Tweetable Quotes:

“Regardless of how well you’re really running your single-family home, it’s going to be based on comparables.”  – Anthony Vicino

“It’s a heck of a lot easier to find a single-family house because you can go on any website, you can find where they’re listed, but largely multifamily properties are going to be listed differently.” – Dan Krueger

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five rules of investing

The Five Rules of Investing

** Transcripts

Anthony Vicino: [00:00:02] Hello and welcome to multifamily investing made simple, this is the podcast where we take the complexity out of real estate investing so that you can take action today. I’m your host, Anthony Vecino of Invictus Capital, joined as always by Dan. I pushed the record button Kruger. I did it

Dan Krueger: [00:00:18] The first time it failed, but the second time you got it started

Anthony Vicino: [00:00:20] Recording. It’s like watching a child learn how to walk kind of toddling. He’s pushing the buttons like, I was a button. How’s the button work kind of

Dan Krueger: [00:00:26] Pulling at it,

Anthony Vicino: [00:00:27] But you got to figure it out. Not bad for thirty-five-year-old. Yeah, yeah. Hey, guys and gals listening to this at home, I don’t want you guys to take for granted just how difficult podcasting is. There are a lot of moving parts here. We’ve got these microphones. We’ve got to turn on. I got recording buttons, we’ve got a push. So hopefully you guys appreciate the hard, heavy work that we’re doing here.

Dan Krueger: [00:00:49] Yeah, I mean, we’re not. I’ll say we’re good at it, but

Anthony Vicino: [00:00:53] I think that’s a stretch. We’re getting there, we’re trying, we’re trying. We’re like one hundred and seventy episodes in at this point, and I think we’re improving.

Dan Krueger: [00:01:00] I think we’re trending in the right direction. I don’t know if we’re good yet, but we’re not as bad as we once were.

Anthony Vicino: [00:01:05] So say we haven’t hit our peak anyways. Ok, let’s talk about real estate investing because this is an under 10-minute episode and we’ve already blown one minute in 15 seconds. Yes. For those of you listening at home, I do have a stopwatch going now, Dan. What are we talking about today?

Dan Krueger: [00:01:18] We’re talking about single-family versus multifamily investing.

Anthony Vicino: [00:01:23] This is going to be lopsided whenever we do these episodes of like single-family versus multifamily. We usually come in because we’re multifamily guys and we pooh-pooh and we’re like, Single-family sucks. Get out here.

Dan Krueger: [00:01:33] I will take the single-family side. Well, would be an advocate.

Anthony Vicino: [00:01:37] I don’t want to poo. Ok, OK, sure you do. Ok, let’s do this. Let’s do this. Let’s actually try to be kind of unbiased and like, look at it fairly and say, like, there are actually really good reasons to invest in single-family versus multifamily. So what are they?

Dan Krueger: [00:01:51] Single-family? Yeah, you want to

Anthony Vicino: [00:01:52] Sell it like sell me on single-family. Give me. Give me the big one.

Dan Krueger: [00:01:55] The big one is the barrier to entry is low. Yeah, I mean, if I want to buy an apartment building, what do I need? A couple of million bucks? I don’t know minimum, but I could pick up a house right now for, you know, hundred grand, maybe put 20 percent down, pick up. Yeah, I’m like, Yes, yes, I’m very strong.

Anthony Vicino: [00:02:10] Yeah, I know you are, but

Dan Krueger: [00:02:12] I know you can get into single-family a heck of a lot easier, at least on the surface. It appears that way under your multifamily.

Anthony Vicino: [00:02:19] So 100 percent first the first property I acquired was a triplex off of an FHA loan. Do you remember how much I put into that? Seven seven seven seven thousand five hundred? That’s like, I’m not saying that’s not. That’s nothing because there are some people out there who are like, I don’t I don’t even have that much yet, but that’s a much easier hurdle to get over than trying to acquire was our last deal. We needed two million, one point five.

Dan Krueger: [00:02:44] Something about like the last one.

Anthony Vicino: [00:02:46] Yeah, yeah. Yeah, somewhere in there. Orders of magnitude more so if you’re at the beginning stages of your career and you’re trying to get into investing in real estate, yes, we love multifamily, but we also recognize it’s it is harder to get into. It requires more cash,

Dan Krueger: [00:03:00] And I don’t think it’s quite as intuitive if I’m a first-time investor. Chances are I’m familiar with a house and the components in a house, and maybe I haven’t bought one yet, but I can kind of wrap my head around what it is. I’m buying a first-time investor in an apartment building. I mean, there’s stuff in there you’ve never really had to think about, like big flat roofs, boilers and, you know,

Anthony Vicino: [00:03:20] Maybe an elevator

Dan Krueger: [00:03:21] Elevator pool, all these different things that, as you’ve probably never had to deal with unless you’ve been investing in multifamily properties, single-family. I feel like it might be a little bit easier learning curve than

Anthony Vicino: [00:03:31] One hundred percent. I would say single families are. And when I say single families, I’m talking about duplexes, tris, and quads, anything under five units. And that’s largely because that’s how the banks look at it and how they lend on these things, which is a big part of these, which is actually single. Families are operationally a whole lot easier, I think than large multifamily. Now, when you have large multifamily, say you have a hundred units, that’s a good thing in the sense that you have the stability because if anybody moves out, you’re still very, very occupied. So they’re doing very well. But you also have one hundred people that you have to deal with, right? And on a single-family home, it’s a little bit simpler. And the reason I think it’s simpler is because the way that the property is valued is largely outside your control. Right. So regardless of how well you’re really running your single-family home, it’s going to be based on comparables. That’s what it’s going to be valued on. So if Jim across the street sold his property at a profit, like at a big no great, then your property is going to sell close to that. If somebody else, you know, got laid off because of COVID and they had to sell their house at a big discount, then the value of your property probably just dropped. None of it has anything to do with how well you operated the asset, which is fundamentally different than multifamily. If you suck as an operator in multifamily, it doesn’t matter. You get a little bit of booing because of the market, of course, but largely if you suck at it like it’s going to cost you dearly on the cash flow side and when you go to exit

Dan Krueger: [00:04:50] And someone else to consider too is how these things scale because you kind of made a comment a second ago about a hundred unit building that kind of reminded me of a podcast up. So we did a while ago where we talked about a hundred single-family, yeah, single-family houses in one portfolio and what that would look like.

Anthony Vicino: [00:05:07] So do you remember the anxiety I had when I realized, like, you have to track one hundred different taxes in insurance payments? I was like, Oh my God, that sounds so scary.

Dan Krueger: [00:05:17] Water bills and bills. But that’s something to consider as well, is, yes, there are more units to manage in a multifamily property, but as you get into larger units, whether it’s single-family or multifamily. Generally speaking, and I know I’m supposed to be defending a single family here, but I’m going to.

Anthony Vicino: [00:05:33] I think I think it’s not even like a contest. We’re just trying to be equanimity equal.

Dan Krueger: [00:05:37] So managing one hundred apartments versus one hundred houses is going to be a lot different. Logistically, it’s going to be a big difference. Or you got a hundred different structures. You’ve got one hundred different residents spread out, even if they’re pretty. Closely correlated together, you just have a bunch of different properties to worry about, whereas in multifamily, a lot of them are consolidated into larger structures, so you might have 100 units across two or three buildings instead of 100.

Anthony Vicino: [00:06:02] That’s always been like the big issue with single-family or small properties for me is that they just don’t scale. They hit this glass ceiling and they’re great when you’re starting out. And so if you’re listening to this and you’re at the beginning of your career and you’re thinking, How do I get into this? I want to get into these big apartments, but it is such a big barrier. You know, maybe you have to start smaller and that’s not necessarily a bad thing. Just recognize that it only scales so far before it becomes very problematic. And I think for a lot of people, that’s around 10 properties. And the reason for that is because of how the bank lends on these things. It’s largely based on your debt to income ratio and at about 10 properties. They stop lending on these things because they’re like your debt to income doesn’t make sense anymore as you scale into multifamily, that no longer really becomes part of the equation, and so you can scale a lot easier. The mistake I think people make is when they get into single-family thinking that’s going to be the thing that they scale, and it’s like, Good luck with that. You’ve just chosen the hardest of all paths.

Dan Krueger: [00:06:57] Yeah, no. It’s easy to get stuck in a flow with something. This is something I’ve been thinking a lot about lately is, you know, try not to become so much of a fanboy of multifamily properties that we kind of miss our opportunities. So that could be a slippery slope, not the topic we’re talking about today. But one other thing I wanted to bring up, and this is kind of related to the barriers of entry thing is that it’s a heck of a lot easier to find a single-family house because you can go on any website, you can find where they’re listed, but largely multifamily properties are going to be listed differently. They’re not going to be on the MLS. You’re not just going to be able to Google these things. You’ve either got to know a broker or have access to a different system called costar, which is kind of like the MLS for larger multifamily properties. But even then, I mean, it’s not a guarantee that anyone’s going to entertain the fact that you want to look at it. If you’re a brand new person, you call a broker. You have no experience. You have no track record. You may or may not have money. They might not even write you out for a tour. So there’s definitely a lot in the whole barrier to the entry side. I think that’s

Anthony Vicino: [00:07:54] A really good one. And especially in this market where it is very competitive, very aggressive, and I think a lot of people look at and so far so hard to find a deal like, yeah, it’s you could say that on the single-family side, sure, things are getting bid up, but it is still so much easier to find a deal there than it is to find a larger deal. I mean, it’s just because there’s so much more supply, so many more sellers, and a lot of them are, you know, owner-occupants who live in there and they’re not looking at it from an investment perspective or they’re just mom and pop owners. And so you can find, you know, more arbitrage opportunities for a good deal as you get into larger multifamily. There are still mom and pop owners, but they know a bit more than your average goose.

Dan Krueger: [00:08:33] Yeah, you’re not really going to be able to steal something from an astute operator as Anthony said. Usually on the smaller scale, if you find somebody who doesn’t really know what they have, or maybe they’re just not investors, they just have a thing and they want to get rid of it. That’s usually a good opportunity to get something at a good discount, but I would say that the single-family spaces is one that’s I think it’s. It’s a lot less black and white, a lot less quantitative, and that’s really the main thing that got me turned off of single-family and turned onto multifamily was the valuation piece, and that is having the value tied to how well you’re running the property. And that’s just to the market. I think that was the big thing that tilted the scale for me. That’s why the first thing I got was a six-unit because it’s specifically just inside the parameters for what qualifies a commercial property, which would get that valuation methodology used anything under that. I just didn’t feel confident that no matter how well I do, I still have to just deal with the fact that the market might not be on the same timeline as me.

Anthony Vicino: [00:09:38] So all right, folks, so that’s going to do it for us. Hopefully, you found this interesting. We did not bash on single families this time. We’re trying to take a little bit more of a fair approach and recognize that it’s different strokes for different folks, depending on where you are in your life. So hopefully this brought you a little bit of value. If it did, then do us a favor because you owe us and you’re still listening to this and that makes you really awesome. Share this with a friend or family member, somebody that you think would get some value out of it. Go drop a review over on iTunes and we’ll see you in the next episode.

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