Comparing Size in Real Estate
After last week’s blog about why I prefer multifamily real estate as my investment vehicle, I received a number of questions. Most of those questions related to the idea that investing in multifamily was financially intimidating. Sure, the size of the property, the size of the loan, and the size of the initial capital involved can be unnecessarily overwhelming, So, let’s dispel some of those thoughts!
Ease of Financing
Don’t let size fool you; multifamily properties often are easier to finance than single-family homes. Yes, multifamily properties carry a larger price tag than single-family housing, but for good reason: they are unequivocally bigger іn just about every way. According to Zillow, one of the country’s most popular home valuation sites, “the median home value іn the United States is $200,700,” and that price point is up 6.8 percent from the previous year. Despite this spike in housing prices we have seen in recent years, the value of single-family homes pale іn comparison to those of multifamily properties.
Interestingly enough though, the higher price of multifamily property doesn’t condemn them to impossible lending practices. In fact, multifamily properties actually are more likely to be approved by a bank for a loan than the average home. Why? Because they are much more likely to generate cash flow each and every month, allowing for a better guarantee of payment.
Scalability of Investment
On this same topic of size, many people think of multifamily as large 100+ unit complexes and immediately dismiss the idea of it being a feasible investment. Don’t let this misinformation dissuade you. Multifamily comes in a variety of sizes and classes, giving you options for your investment. Scale your investment to meet your capability. Start with a smaller, Class B or C complex that better suits your available capital.
If money is really tight, take it one step further: live in one of the unites and pay down the mortgage you receive from rent. Not only is it entirely possible tо pay your own mortgage with the rents you collect, but you quickly will find yourself ready to purchase a second property. You’ll have a portfolio in a relatively short period of time.
Speed of Accumulation
This leads us to the rate of accumulation. It stands to reason that the average real estate portfolio isn’t created overnight. In fact, today’s most prolific real estate portfolios are the direct result of years and years of hard work. However, just because a great real estate portfolios takes time, doesn’t mean it needs to take forever. And therein lies on of the best benefits of multifamily real estate: itcan facilitate the growth of a sizable portfolio in both a timely and profitable fashion.
For example, acquiring a four-unit building requires an investor to complete only one transaction that wіll result in four streams of income. On the flip side, a single-family home investor would need to complete four independent deals in order to add the same amount of income streams. The latter option also would have the investor close four escrows, hire four inspectors, apply for four different loans, pay four different closing costs—you get the point. Buying a multifamily property wіll save you the headache of closing on multiple deals at a time and, perhaps even more importantly, save you a great deal of time in the process. The bonus? Multifamily housing typically is acquired with existing tenants and therefore, immediate cash flow. The same cannot be said for single housing in most cases.
I want to make it abundantly clear: multifamily real estate is not the only strategy that will help you accrue wealth. It is worth noting, however, that it potentially can be the only one you need. If you are looking to achieve financial freedom, or at the very least rid yourself of paycheck dependency, you could do far worse than investing in multifamily real estate. In my experience, it is not only a great first step on this road to financial freedom, but also a viable investment strategy for the duration of your career.
Have more questions? I’d love to hear them!