Many investors are attracted to real estate investing because there are many different ways to participate. There are many product types and investing strategies, making real estate one of the most diverse investment vehicles. Investors can pick whichever type of real estate property they are interested in, whether it is office, retail, industrial, or residential.

Here, we will focus on residential real estate, particularly multifamily investment properties, and why single-family real estate investors are switching.

Residential real estate is the umbrella term used to describe several housing types. In multifamily, the term usually refers to properties used for housing purposes, such as duplexes, condominiums, townhouses, etc. Student housing, assisted living communities, and large apartment buildings fall under commercial multifamily real estate.

Residential real estate properties are typically owned or rented and occupied by individuals and families as their primary residence. However, some may also be used as vacation homes or investment properties.

While many investors go for single-family rental properties, multifamily investments are quickly becoming more popular, especially among investors who want to build wealth. Let’s examine why a real estate investor might consider multifamily investing over single-family investing.

WHY SINGLE-FAMILY INVESTORS ARE DIVING INTO APARTMENT COMMUNITY INVESTING

Savvy and wealthy investors are choosing multifamily investment properties over single-family rentals, and we will discuss why here.

First, we need to acknowledge all the benefits of single-family investing. Investors can go for this option without regretting it for plenty of reasons. For example, these properties are generally less expensive and easier to acquire than large multifamily properties such as apartment buildings.

Generally speaking, these properties are easier to acquire and manage and are more liquid than their multifamily counterparts. Single-family homes are also more affordable, which means investors can enjoy a low barrier to entry. Investors just need a modest capital to participate in this investment.

Because of the nature of single-family rentals, investors do not have to stress much about becoming landlords since there are fewer residents to manage. The property is also smaller, making repairing and caring for it easier.

The resident base for single-family properties is also described as “sticky,” meaning they are likelier to stick with a rental property for years. In contrast, residents in multifamily properties tend to come and go.

Finally, single-family rentals can be easier to sell. When it’s time to sell the property, there may be more potential buyers, like families interested in purchasing the house to use for themselves. It is generally possible to sell the property within 30 to 60 days.

With this in mind, plenty of advantages give multifamily investing the edge over single-family real estate investing.

WHAT IS MULTIFAMILY REAL ESTATE?

Multifamily real estate refers to residential and commercial buildings that contain more than one unit, such as apartments, student housing, condominiums, townhouses, and duplexes. The term “multifamily” typically refers to larger properties with several units.

Individuals, partnerships, or corporations can own multifamily properties, which can be rented or sold as investment properties. They are typically managed by a property management company, which handles resident screening, rent collection, maintenance, and repairs.

Investing in multifamily real estate can be a lucrative opportunity for those who want to earn passive income through rental properties.

Multifamily properties can often generate higher rental income than single-family homes, and they can be more affordable to purchase on a per-unit basis. Apartment communities have the potential to generate higher rental income compared to single-family properties. This is because multiple units are rented out, developing multiple income streams.

Additionally, investors can benefit from economies of scale by owning multiple units in a single property, which can help reduce the overall maintenance and management costs.

Multifamily investments offer benefits like lower cost per unit, multiple income streams, economies of scale, and the ability to scale your investment portfolio. Multifamily investment properties tend to have a lower price per unit. Any additional cost is spread across the different units, which leads to a lower cost per unit. The more units a multifamily property has, the more these costs can be split.

ECONOMIES OF SCALE

Experienced investors also consider economies of scale. Hiring a property manager for a single-family home may not be the best use of capital. However, it makes sense to do so if you own a multifamily property with over 30 units to manage.

It only takes one due diligence process to purchase a 30-unit apartment building, whereas it would take 30 separate transactions to acquire a building of the same scale as single-family homes.

Arguably, the most significant advantage of investing in multifamily real estate is the strong and consistent cash flow. It can be more reliable than a single-family property because even if one or two residents leave, the remaining units can still produce revenue through rental income. If a single-family home becomes vacant, the owner must pay all the expenses until it is leased. It also stops generating monthly income.

Investing in apartment communities allows diversification of an investor’s portfolio and reduces risk. With multiple units, the income generated is less dependent on the performance of a single resident.

Investors who want to scale their portfolio will see that investing in multifamily real estate properties can be more manageable. You can potentially achieve scale with a multifamily investment in just a few transactions, whereas it may take years to do the same thing with different single-family properties.

Single-family properties can be more limited in terms of scalability than multifamily properties. With apartment communities, investors can purchase a larger property that generates more income, making it easier to grow their portfolio.

While these multifamily properties are naturally more extensive and expensive, the benefits are undeniable. Some investors aim for apartment buildings ranging from 20 to 50 units so that they can execute a value-add investment strategy on top of the cash flow that the property generates.

Investors who recognize the potential of multifamily investing will realize this could be a path to long-term wealth creation. However, if you are concerned that these properties are expensive and complicated to acquire, there is a solution. It is called multifamily private placement (syndication).

TRY MULTIFAMILY REAL ESTATE PRIVATE PLACEMENT (SYNDICATION)

Multifamily syndication deals are exclusive to accredited investors and solve most of the problems associated with traditional multifamily investing.

Purchasing a multifamily property alone can be difficult because apartment buildings are expensive. The higher the number of units, the pricier these properties are. Large multifamily real estate properties are also more challenging to manage since more units and residents exist. These are the two biggest concerns for real estate investors looking into multifamily investing. However, a private placement, or syndication, deal is structured so real estate investors can pool their resources and purchase a real estate property.

Thanks to all the benefits listed above, multifamily syndication deals are the most popular among wealthy investors who are uninterested in becoming landlords. You can enjoy the strong cash flow and the diversification without dealing with residents.

This is because the owner/operator (syndicator) puts the deal together and handles property management in a multifamily syndication deal. They look for investors who will provide a portion of the capital needed to purchase the property in exchange for a percentage of the monthly cash flow and capital appreciation, depending on the deal structure. [1]

Multifamily syndication is a passive investment usually structured as a limited liability company (LLC) or a limited partnership (LP). The owner/operator (syndicator) is responsible for rent collection, managing residents, and dealing with emergencies.

Investors typically share in the profits and tax losses of the investment, making it safer than purchasing apartment buildings alone.

With multifamily syndication, you can enjoy strong and reliable cash flow without any usual headaches associated with investment real estate.

CONNECT WITH AN INSTITUTIONAL REAL ESTATE OWNER/OPERATOR 

Like other real estate investments, multifamily syndication is still subject to illiquidity because these deals tend to last for years. Accredited investors are somewhat more comfortable with not having access to their funds because of their high net worth and income.

Still, working with a trustworthy owner/operator is essential because, as this is a passive investment, they will make all the decisions regarding the investment property.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units. [1]

Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

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SOURCES:

[1]: BAM Capital. (n.d.). “Current Portfolio.” https://capital.thebamcompanies.com/