It’s times like this when I truly realize how big the real estate world is and how much it contains, starting from the different options of investments to multiple different types of properties, all you have to do is pick and choose your new stream of income.
But obviously, you can’t just aim a finger at one and put your whole capital in it, hoping for the best outcome. Choosing where to invest can turn into a big dilemma when you don’t know enough to actually know which investment is the best for you. Which brings me to the main point of this blog post – which asset class is better to invest in?
Investing in Single-family house:
The single-family house is a property that is designed for, you guessed it – single tenants, which is considered the biggest advantage of this asset class. Working with one tenant and meeting all their needs is supposed to be much easier for a person who is planning to become a landlord.
However, having one tenant isn’t as great as it might seem – the chances of a halt in your cash flow is pretty high. Consider the fact that you are either renting the whole property or have a 100% vacancy and no income, there is no in-between. When your tenant moves out, there is time to get the place ready for the next renter, and then there is the process of finding and qualifying that renter.
Additionally, the studies of Dave Peniuk show that the profits generated from single-family homes are pretty disappointing and cash flow is basically non-existent: Dave bought 2 single-family homes, together for $147,000 and the total rent of both was $1,220 a month, while the monthly expenses on both houses were $1,200 leaving him with a profit of $20 a month!
$20 a month? Aren’t we investing in real estate to generate better income and turn our lives around? Is working with one tenant worth losing the possibility of growing wealth?
Investing in Multifamily house:
Multifamily households remain investors’ favorite asset class to invest in, as compared to any other type of property. Multifamily stands out with its possibility of generating stable cash flow, made possible by the multiple living units it contains. This means that if one or two units are vacant, you are still earning money from others.
Additionally, statistics show that the average monthly rent rose 2.9% year-over-year to $1,685, up from the 2.1% growth of a year ago, which means that the income of the multifamily investors is growing daily and are definitely much more than $20! And if once again, we will bring Dave as an example, after the failure he faced with a single-family house, he generated a profit of $550 per month with a multifamily household.
The one aspect of multifamily properties that many consider as a downside is the idea of working with multiple tenants and trying to fix their problems daily. However, you can always invest in multifamily apartments passively.
For example, more than 90% of the multifamily investors, have purchased the property through apartment syndications, where the properties are fully taken care of by the general partners (GP) of the deal, who are responsible for managing the property, working with tenants, generating the money for their passive investors (LP) and dividing the profits to all partners involved in the syndication.
Conclusion:
If you are interested in real estate because you are looking for the easiest and safest way of growing your wealth, multifamily apartments are definitely the better investment choice, especially when talking about multifamily syndications!