For today’s episode, we will be discussing with a bit of bias on which is a better investment vehicle single-family or multifamily.
This week we’re covering the research and personal experience.
We will talk about these things…and more in another episode of Multifamily Investing Made Simple in under 10 minutes.
Tweetable Quotes:
“the valuation aspect, which in my opinion reduces the risk profile substantially because it puts more control into your hands” – Dan Kreuger
“What I didn’t like when I looked at the long view of where I wanted to be as a real estate investor was the fact that the valuation was tied to comparables.” – Anthony Vicino
“going back to how these things are valued in the funding model when you go to the bank, you’re going to have a really hard time getting more than 10 loans on this residential property” – Anthony Vicino
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Which is Better Single Family vs Multifamily
Which is Better Single Family vs Multifamily_processed.mp3
Anthony Vicino: [00:00:14] Hello and welcome to multifamily investing made simple in under 10 minutes, this is the podcast where we take the complexity out of real estate investing so that you can get started today, and then we’re going to reinsert that complexity once we’re done. No, it’s all pretty simple at the end of the day.
Dan Krueger: [00:00:30] And Lazarus’s.
Anthony Vicino: [00:00:32] Yeah, now I’ve confused everybody. They’re like, wait, what about you? Don’t go and stick around. Today, we’re going to be talking about the difference between single-family investing and multifamily investing. And yes, we are multifamily investing made simple. So we are going to come out on the pro side of multifamily. Just want to get that out of the way. We’re biased. But before we get to that, let me just introduce ourselves, to you, the listener, if you have no clue who we are. I am Anthony Ticino of Invictus Capital, joined as always by Dan, the author of Passive Investing Made Simple Kruger always.
Dan Krueger: [00:01:09] That’s right. It’s George. George, George, George.
Anthony Vicino: [00:01:12] I missed. I mistook that. Well, I wanted to give you credit because you are officially, officially and I’m just going to say it. You’re a best-selling author at this point. You get there. We were just checking. We are on the cusp. We are on the cusp. By the time this episode launches, I do believe we will have gotten you that best-selling Amazon author badge for the new book that we just published. Passive investing made simple
Dan Krueger: [00:01:37] Realize you’re it’s your blood, sweat, and tears that make this thing a good book. I cried a
Anthony Vicino: [00:01:42] Lot. I’m not thinking.
Dan Krueger: [00:01:44] Yeah, it’s actually kind of gross for the cost that works on Amazon. It’s not being pried up. Anthony, these are fresh off the press.
Anthony Vicino: [00:01:50] Yep. No tears. Not what you do. Want some Anthony tears. You can text me or email me and I will I’ll bottle them up for you and send them over. Now, if you want to make me cry, here’s how you do it. You come to me and you say, Anthony. Multifamily, stupid, single-family is where it’s at. That will make me cry.
Dan Krueger: [00:02:08] Dan, tell them why. Well, first, you’re wrong. Second, I mean, we say you’re
Anthony Vicino: [00:02:16] Stupid, I’m not listening to you. No, no.
Dan Krueger: [00:02:18] We can make this real estate in general, whatever sector whatever aspect, whatever type of property you’re looking at like you could do really well at pretty much any space. It’s all about kind of finding the right fit for your goals and your personality, finding out what aspect of real estate you actually enjoy, whether it’s retail, hotels, land, apartment buildings, or single-family. There’s no wrong way to do it, right? If you’re if you enjoy it. And last year, your investing goals, if you’re going to get your long-term goals, our power to be up. But for the sake of this episode, we want to explain exactly what it is about the multifamily side of things that that we prefer and why specifically over the single-family asset class we would like better. And I think Anthony is especially well suited to kind of speak to this because I skipped right to the technical multifamily asset class, which is basically anything above five. I did that intentionally. I did my research and I decided this is the space I’m going to go into. Anthony took a more common approach where he didn’t do a single-family persay, but he did duplexes like a triplex.
Anthony Vicino: [00:03:37] Yeah. Yeah. Which it’s valuable. You guys are residential actually.
Dan Krueger: [00:03:42] And from a valuation perspective, it’s kind of the same thing. So what kind of unpack why these things are different, why at five units things change and what changes. Why we prefer the stuff.
Anthony Vicino: [00:03:55] Yeah. The big thing to know there and this is for me, the biggest reason I can speak to this personally, as my first actively managed property was a triplex where I lived in one of the units. I took out an FHA loan, so I only put like seven. What’s that? How does that house I could yeah? Before. Yeah, that’s exactly what it was. And it was fantastic. Honestly, a great way to get into a property is highly recommended. If you’re at that place in your life where you’re a kid living onsite with your tenants and dealing with all that, it’s a fantastic way to get started. What I didn’t like when I looked at the long view of where I wanted to be as a real estate investor was the fact that the valuation was tied to comparables. So if you have a single-family home or a property that’s four units are under their value on what is known as comparables. So whatever the guy next door sold his property for is roughly what yours is going to be worth. And so I didn’t like that because it felt like some things could happen in that guy’s life and he could be forced into a selling situation.
Anthony Vicino: [00:04:58] He might not be running his asset very well. Maybe somebody died in need of some liquidity. And so maybe he sells his property at a steep discount. Well, now my property is now worth a little bit less because that guy sold his for less. I hated that concept. Like, I wanted to have control and know that the work I was putting into my property was going to be rewarded and it wasn’t going to be affected by the whims of somebody else. And that’s where multifamily is fundamentally different because our properties are valued based on their income, just like a business. The more income, the more profit it generates, the better. And so if you can run your property really well and effectively with driving up revenues and decreasing expenses, then you can make your building more expensive and you don’t have to lose sleep at night wondering is Bill down the street going to sell his house for one hundred thousand less than the market? And he me
Dan Krueger: [00:05:50] Stupid. I mean, that’s that was one of the biggest ones that stuck out to me when I went down the rabbit hole initially before I got into business was the valuation aspect, which in my opinion reduces the risk profile substantially because it puts more control into your hands and the entire control freaks. Just going, to be honest, but there’s a lot of other aspects about it that make it an appealing asset class relative to single-family homes, duplexes, TREIS, or clots. And that’s the scalability of it. If you want to acquire, let’s say, fifty apartment units, you can do that in one transaction by one building. It’s got fifty units or you can get a twenty-unit complex and another thirty units, two transactions. But if you want to get to that unit number, the smaller properties of five years, you’re going to do a lot more transactions. It’s a lot more buyers. You’ve got to go find a lot more loans. You’ve got to get a lot more underwriting, a lot more roofs, and things to worry about. And so the scalability is another aspect of it. And that’s something that really attracted me to it is not only is this something that I had, it’s a very simple business model, but it’s scalable. And as I was coming out of my previous entrepreneurial endeavor, which was coaching a consulting business, the thing I kept. Having an issue with this is great, but there’s only one of me, there are so many hours in the day, the scale, the scalability of that endeavor I was in was really bugging me. So I instantly got turned scalability of multifamily. So that’s another piece. Yeah.
Anthony Vicino: [00:07:26] And something people will look at there when they’re new or they’ll say, well, it’s scalable. You can get these bigger properties, but it’s probably harder to go and buy a 50 unit than it is to buy a single-family. And it might be a little bit harder, but it’s not 50 times harder. Right. And the thing is, if you’re going out there and trying to buy a bunch of single-family homes, going back to how these things are valued in the funding model when you go to the bank, you’re going to have a really hard time getting more than 10 loans on this residential property. So you’re going to hit this upper ceiling really quickly and it’s going to stymie how far and how easily you can grow. And tied into that scale is this other concept of stability. So as we get bigger, these properties become inherently more stable, because, in my triplex, one of the things I would lose sleep about is I was living in one of the units. That means I had two tenants. So that means if somebody else was to move out, well, now I only have one tenant and that means I’m having to pay my rent and this other person’s rent. And so I am inherently more volatile. If somebody leaves now, if I have a hundred units and somebody leaves, I’m still ninety-nine percent occupied. I’m still pulling in ninety-nine percent of the revenue, which means I’m probably going to be OK to cover my, my mortgage, whereas if I lose it or a single tenant on that triplex I’m having a hard time covering my mortgage.
Dan Krueger: [00:08:46] Yeah. Just kind of double down on that point. For those of you who aren’t in this space yet, you might not realize this, but statistically speaking, you’re going to end up with a handful of crazy residents over the years. Right? There are going to be those. Yeah, those those those freak scenarios where someone pops up and it’s just a nightmare. And if you have a duplex and that’s one of your units, you’re screwed. You’re whole years down the toilet. Bummer. Right. But to anticipate that under a building, that guy might be wreaking havoc and causing stress from an operations perspective, from a cash flow perspective, it’s not really going to destroy your cash flow. So that’s another piece there. And then on the debt piece, I just kind of want to get a little bit more color to that. The debt limit that they mention, like there’s a limit to how much lenders are going to give you for these types of products, typically, unless you go to a specific type of lender. But in addition to that, there’s also you’re effectively going to be going through the process of getting a loan, just like if you were getting a house that you live in. So I think most people can relate to that. It’s a very long, grueling process.
Dan Krueger: [00:09:57] The bank is going to take a very deep look into your financial situation and they’re going to look at you and try to figure out if you can afford this house, even if you’re buying it for the purpose of being a rental. They’re going to look at you and what’s your income? Can you afford this mortgage? Whereas if you’re going to buy an apartment building, what you’re buying is a business. And so the bank is going to look at that business and say, can this business afford to pay for itself? Which is great. There’s still going to look at the operator and make sure that they know what they’re doing. They’ve got a track record, they’ve got cash, the bank if things go wrong. But they’re not going to be sitting there looking at you, trying to figure out if you can afford this because it’s a self-funded business, which is huge. And then one last little tidbit is just the logistical inefficiencies of having a bunch of houses all over the place. From a management perspective, whether it’s you doing it or third party or in-house employees, it’s not as efficient to manage one hundred houses as it is to manage one hundred apartment units. So I think that kind of summarizes it hits a lot of
Anthony Vicino: [00:10:56] The big ones. Right. We might have to we might have missed some, but we’re running up on our ten minutes. We might be over. I don’t know. So that’s going to do it for us. The other big reason let’s take this from the top that we like multifamily is valuation, stability, scale logistics, and the funding that for us closer five really good reasons to stick with multifamily. And so as Dan mentioned at the beginning of the show, we’re not pulling single-family homes by any means. There are tons of ways to make money in real estate. Find one that works for you and your personality. Have a hoot. We hope you enjoyed it. We’ll see you next week.
