Owning property is either an investment or a full-time-job. It cannot be both. Look at it like a job, and you run the risk of failing at your real job as well as your landlording. You need to seek ways to make it happen with as little of your involvement as possible.
Mike Butler, author of Landlording on Autopilot (a good read to learn systems of landlording) has built his investments out of single family residences (SFRs). He is all-in on SFRs and will tell you why in that book.
It’s a good read, full of lots of tips, but I disagree with him – multifamily is where you should be.
What’s Wrong with SFR?
Consider your typical first property – it got you to where you are today. It was probably a SFR and maybe you were an accidental landlord, like me. When you bought that first one you probably made a lot of mistakes, ones you won’t make again. Today you know that to buy a SFR you will go through a few steps including:
- Inspection
- Financing
- Closing on the property
- Set up insurance
- Pay property taxes
- Decide on rent amount
- Advertise the rental
- Drive by the place for inspection at least monthly
That’s not an exhaustive list, but it’s a good start. Once you have that one put away, it’s time to buy the next one. Now, do your list all over again. But at least you can rest easy – you don’t have to set up utilities – the tenant will do that.
Why MFR?
You’ve probably got that list memorized by now. It’s time consuming. Each SFR is different from the next. It’s difficult to do all these things in the exact same way as the last. They each take time. In a multifamily, the units are usually set up in prototypical ways – there is a certain layout for the 1 bedroom 1 bath units, a different one for the 2 bedroom 2 bath units, and so on. You will usually price the rent the same for a similar type of units. The photographs for your ads will be the same. In fact, you can have one listing for all the vacant units of a same type. That saves a huge chunk of time.
Not to mention that there is only one property tax and insurance payment for the entire property. The monthly inspection is easy – a couple hours to see the entire place.
In one 90-day period, a MFR purchase can get 100 or more units. How many SFRs can you do? Maybe 3 if you are really quick. If each of those 100 units is netting $100 in cash flow, that’s 10k a month! It’ll take a lot of SFRs to match that.
Price per unit in an apartment building is quite a bit less than price per unit in SFR. In MFR, you might pay 80k per unit. Put that next to what it costs to buy a house and you have a huge difference.
I’m not saying you need to buy a 100 unit apartment complex, but given the choice between purchasing a $600k 8-unit multifamily and two $300k SFRs it’s a no-brainer. But that’s just my side of the story. If you want the other guy’s argument, pick up the Butler book.
