Discover whether single-family or multifamily investment properties are a better investment. To answer this question, Jorge and Rafi talk about the pros and cons of investing in these types of properties, and describe the specific investors who are best suited for each.
Furthermore, Jorge and Rafi suggest a progression of investing in single-family properties, smaller multifamily properties, and graduating to large multifamily properties such as apartment complexes.
00:01 Rafi: Good afternoon, welcome to Graystone Brown Bag Sessions. I am Rafi.
00:06 Jorge: I am Jorge.
00:07 Rafi: Excellent, and where can they find us?
00:10 Jorge: They can find us at homes4income.com. That is homes, the number four, income dot com.
00:17 Rafi: Awesome. Awesome. Also don’t forget to follow us, so you can get notifications when we go live. Remember it’s somewhere, I think it’s over there, aquí o acá? I don’t know, just follow us so that way you get notification when we go live. And if you’re getting in right now, don’t forget to share with your timeline, that way they can also join on the conversation. And if you join please make a comment, that way we know that you’re in. We know that right now there’s five of you out there. If you can make a comment, that way we can see if you get in, that would be great. Remember the purpose of our brown bag sessions is to answer one question from our viewers in regards to real estate investing. So again, if you have a question make sure you put it in the comments, and we’ll see if next week we can answer that question.
01:22 Jorge: Absolutely.
01:23 Rafi: Before we continue we want to give a big shout out-to one of our new VIP clients, Brooks from Canada, and not only he joined already, but he also already bought a property. So in less than a week, a couple of weeks, he already bought a property. So Brooks, welcome to the Graystone family. We are very happy to have you. And I see that Jason just joined, Jason Fix from Graystone Real Estate.
01:50 Jorge: Jason, what’s up?
01:51 Rafi: And then the big Luigi Leon. Yeah, with the blue brothers, but what? En manos azules? That sounds like… I don’t know. Anyways, thank you very much guys for for being there. And remember, if you join just make a comment, that way we know that you’re in. Now today’s question, it’s one that we have received several times. And I think it’s very, very, very fitting that they asked this question because when you see it out there, you see these big buildings, these big complexes and you go, “Man, I wanna invest in there.” So the question today is very simple. Multifamily properties or single-family properties, which one is a better investment? So I ask you that question, Juan Walker, best realtor out there, I ask you that question, multifamily or single-family home, which one is a better investment?
02:50 Jorge: That’s a good question, Rafi. They’re both good investments. My input in regards to multifamily versus single-family is kinda complex, my answer is kinda complex. But I will say that you either, especially if you’re a rookie, you got to start somewhere. And single-family houses are easier to grasp the concept, is easier to understand, the single-family homes versus… Is easier for you to go to Zillow and find out the more or less the value, is easier for you to find the data that you need, to make a decision on a single-family home. Nine times out of 10, buying an apartment complex is gonna be more difficult. You’re gonna require some professional help to really come up with the value of that asset. It’s a little more difficult.
03:46 Rafi: So would you say that single-family is more like basic/intermediate and then multifamily is more on the advanced side of the equation?
03:55 Jorge: Yes. I think the ideal business plan, the business plan that Graystone has is, we’ll start buying single-family homes. Once we feel comfortable and master that, then we do some sort of exchange to exchange those funds in a 1031, 1035 exchange, and then we move into the big leagues, then we could transfer. Once we feel comfortable with buying, managing 10, 15, 20, 30 assets, then we move to the apartment complexes. But one thing I wanna mention, that you have single-family homes, and you also have multifamily homes that are called duplexes, quadruplexes, and then you have the apartment complexes.
04:45 Rafi: Okay. So when we’re talking about multifamily homes, I think that’s probably where we should have started. What would be considered a multifamily home? Because I don’t know, from my perspective I’m thinking somewhere where there’s multiple, 10. 15, like an apartment complex. But for the sake of this discussion, is a duplex a multifamily home, or triplex?
05:10 Jorge: Yes.
05:10 Rafi: Yes. So why, if it’s one roof basically, why would you categorize duplex and triplexes as multifamily homes? And let me say hi to Raymond, that just joined.
05:22 Jorge: Hello, Raymond.
05:22 Rafi: And Eric also out there. But why would you say that duplex, triplex is a multi-family home? For the purpose of the discussion.
05:29 Jorge: Well, they have multiple families, it’s more than one family under the roof. It’s very simple.
05:38 Rafi: So why is it different to manage? “Hey, I want more rents under one roof.” What makes them more complex to manage than a single-family home?
05:48 Jorge: To me to answer that question the fastest I can, if I had the option I will say go from single-family homes to 100 units, minimum. And I’m gonna explain myself why. Because any time you dealing with a duplex might seem like a good idea, you know at the beginning you’re like, “Whoa! I get two rents, better than one rent.” But imagine, just like if you have one bad apple, if let’s say, you have two tenants under one roof… And by the way, typically on a duplex the rent is gonna be lower than in a single-family home. Typically if you have a house that’s a three one, versus an apartment or a three one apartment, because you have a fourplex or a duplex, that’s not a house. It’s more like villa or an apartment, so the rent is gonna be lower. The double tenant is gonna be lower quality, the rents are gonna be lower, and all it takes is that the neighbor tenant to do something bad, the bad apple to spoil all the other apples. Anytime you’re gonna go multi, I say go for the big numbers. You wanna do 100, 200, but you don’t wanna get in something in between, because then you’re better off with single-family homes.
07:18 Rafi: Okay. I get it. So in terms of rent, you said that it’s a lower rent. One other thing that you have to consider, again and thinking of your long term strategy, is when you have a portfolio of single-family homes that you’re renting, and you want to dispose of one, let’s say that the appreciation has gone up a lot or bad tenant and you say, “You know what? The cap rate is too low, so I’m gonna dispose of it.” It’s much easier to say, “Hey, I have one tenant so I give them 30, 90 days notice, get out, re-habit, move it out.”, versus having to move two, three tenants that then… Hey, one contract ends in March, the other contract ends in May and the third contract ends in September. So now you’re basically stuck, it’s February let’s say, and you’re stuck until September unless you have some cancellation notice or something like that. But it’s much more difficult, really, to handle that versus a single…
08:23 Jorge: The better plan too is a multi-unit… If you were to categorize it, single-family home is an A, a multifamily is a B. And if you’re investing in a C area, then you have a B property in a C area that’s gonna yield… It makes sense, when you look at the type of tenants we’re looking for, right? That sweet spot tenant is a tenant that pays a minimum of $800.
08:52 Rafi: $800 to $1,000.
08:54 Jorge: $800 to $1,000. So anytime you have a multi-unit in the same areas that we’re doing, which is the C plus, B plus areas, nine times out of 10, the rent is gonna be below $800. Think about it, why would you go to an apartment when you have the capability of paying for a house, having you own yard and things like that. So when we say, “Let’s buy the high end of the low end,” we stay away from those B or C rated properties that are gonna downgrade or C plus or B plus to a D. Does that make sense a little bit? Make sense?
09:30 Rafi: Okay, okay. So now I’m an investor with a million bucks. What you’re saying is, “Hey, instead of them buying 10 multi-families, at that point start getting then into the apartment complexes, where 50, 60 units.”
09:50 Jorge: Correct.
09:51 Rafi: Why that? Why make that jump from maybe… Again, I could buy with a million dollars 10 multifamily properties, 10 duplexes, let’s say. But you’re saying, “No, with that million dollars go ahead and buy a big apartment complex.”
10:05 Jorge: Absolutely. Because the whole point of having multi-units, right, is to offset risk because now you have two rents, and technically you have more money coming in. But with multi-units, smaller ones, two, three, or four, you’re actually increasing the risk. Because you have two or three people living together, like you mentioned before, one bad tenant could damage the other three. And the same risk factor is in a single-family home, is the same risk factor on a duplex. If you really wanna lower the risk factor on having more rents coming in to you by the numbers and having one roof where one property manager is catering everything, the only obvious option is an apartment complex.
11:00 Rafi: Go into a bigger…
11:00 Jorge: And if you have a million dollars, really to buy apartment complex, like I said, is not something you find the value on Zillow and make an offer. You need to…
11:08 Rafi: Yeah, that’s a more advanced subject, more complex.
11:10 Jorge: You might have to end up paying 10 grand to somebody to evaluate it. It’s more complex.
11:17 Rafi: That’s why you get more the commercial real estate and it’s not just a mortgage that you go to Bank of America, knock on the door and just say, “Hey I want a loan there.” Now you mentioned something, property manager. And those of you that have been with us before, know how much we advocate that you use a property manager for your properties, even if it’s one. I don’t care if it’s one. Even if it’s one, we advocate that you use property managers. But in this decision of single-family homes versus multifamily, I think it’s even more important to have a property manager because you’re managing multiple tenants. You agree?
11:53 Jorge: Absolutely, absolutely. I think just a matter of, like I said, single-family homes, multi-units that are under 10 units, are gonna have the same type of needs. ‘Cause you can have a property manager inside, you can have a property manager living there. And if you do, it’s gonna be very costly. If you’re occupying one of those 10 units to have a manager…
12:17 Rafi: Yeah. That cap rate is negative from that one unit.
12:19 Jorge: It’s gone.
12:19 Rafi: Yeah.
12:19 Jorge: You need to have… In a big scale, you can have a manager in place and then take your liabilities a lot lower. Otherwise you lose [12:29] ____.
12:29 Rafi: I think the other key thing is again, interviewing the property manager…
12:33 Jorge: Absolutely.
12:33 Rafi: And understanding what kind of properties. Because if you have a property manager that has only dealt with single-family homes, and then you say, “Hey, I bought an apartment complex, 10 units, 20 units, 50 units.” Is that the guy that you want to handle it? Probably not.
12:48 Jorge: You need someone in-house. You need somebody…
12:51 Rafi: He may be great at the single-family homes, but it’s a different animal. You need to find a property manager that has experience in this type of property, so that they can then apply that experience…
13:01 Rafi: Because again, it’s a different animal. I think the other thing is again, you look to minimize expenses. When you have these multifamily properties, repairs.
13:13 Jorge: Of course.
13:14 Rafi: If it’s something that is plumbing, now it applies to two units. Because most likely if something broke on one side, guess what? It’s gonna affect the other.
13:24 Jorge: That’s right.
13:24 Rafi: So you also have to have a higher maintenance reserve…
13:27 Jorge: Absolutely.
13:27 Rafi: For duplex units.
13:29 Jorge: Absolutely.
13:30 Rafi: Again, just because of the fact of the shared space. Also you have twice the amount of usage. Instead of having one family of five, let’s say, under one roof, you have two families of five under the same roof. So now there’s 10 people using the property. So your maintenance reserves have to be higher on multifamily properties which brings the cap rate down. And remember, this is all about that percentage at the end of the year. You want to find ways to make that percentage as high as possible.
14:02 Jorge: And to give you an example, for those of you here in the Bay Area, you wouldn’t buy a duplex in Sulphur Springs. There’s a reason why Sulphur Springs is suffering so much. Because it’s a C area with a C property, right? Or a C area with a D property. But would it be the same case is South Tampa? If you find a unit in South Tampa? Well, maybe not. But guess what? You’re gonna pay way more money on a property in South Tampa, and at the end you’re gonna be better buying… Buy a single-family home in the high end of the low end neighborhood. That’s what we say.
14:40 Rafi: High end of the low end.
14:42 Jorge: High end of the low end.
14:42 Rafi: That’s where the value is in terms of what we do.
14:44 Jorge: Absolutely.
14:46 Rafi: Well, before I forget I see that Alan just joined. Man, if you want SEO, if you want to do stuff like that, that’s the guy. Alan McNaught. He’s in the comments. Contact him.
14:57 Jorge: Any questions? We’ll open it up for another minute or so.
15:00 Rafi: Yes, if there’s any questions there. And again, I see, wow! We have 10 people join us, which is great.
15:05 Jorge: That is cool.
15:06 Rafi: Let’s see if we have any questions there. Oh, we have a question by text. That’s weird. We’re Facebook Live. Send us the questions here. No, no. There, somewhere there. Send us the questions there. Well, we have a question by text, and the question is, “In terms of appreciation, which one normally appreciates more? Single-family or multifamily?” That’s a very good question because we were approaching it from the side of rentals. But in terms of appreciation, how do you see multi-families versus single-family in this market, in appreciating more or less?
15:50 Jorge: Oh, that’s a good question. A single-family home, it’s very easy to determine what the value is. You go online or you get an agent to do a CMA, and it’s a done deal. With multi-units, especially the big ones, 100 plus, you make that value yourself by increasing the curb appeal, increasing the value of the rents by fixing the apartment complex. Nine times out of 10, anybody buying an apartment complex is looking for the future in…
16:28 Rafi: Appreciation.
16:30 Jorge: Appreciation. And the future cap rate. Most investors look at, “Okay. What is the operating cap rate now?” But they’re more focused on what is the potential cap rate two, three years down the road…
16:44 Rafi: Got it.
16:45 Jorge: After I do the repairs? ‘Cause they’re gonna pay their sales price if they’re looking to flipping it, based on that cap rate number. For instance, most of the cap rates on any apartment complexes in Tampa, don’t go any higher than five or six.
17:00 Rafi: Absolutely. Okay.
17:01 Jorge: So, the only time that somebody’s gonna buy something to invest, if they could see it at five to six, put some money into it, and try to sell it to seven to eight. That’s the normal. But there has to be an opportunity. There has to be an upcoming area where they’re like, “Okay. We’ll fix this apartments and instead of getting 800, we could start getting 900.”
17:23 Rafi: Okay. Awesome.
17:25 Jorge: That’s the difference.
17:26 Rafi: Awesome. And I see that Tom Packer, ain’t gonna buy in the South Shore area. You know what? Right now we are focused in the Tampa Bay area, so Pinallas, Hillsborough, Pascal. We started [17:42] ____ and we’re looking at other areas. We’re looking at expanding. We’re going to Gainesville next week, so go Gators. We’re going to Gainesville next week. We have some opportunities there, and Jacksonville. It’s another area that we’re looking for and we’re scouting there, but Sarasota is next. So Tom, stay tuned. Definitely something that we are looking forward to expand the Graystone model into other areas. We have a lot of people asking about it. So that’s it for today. We promised 15 minutes. We went a little bit over, 18 minutes. I want to make sure that you guys don’t miss lunch. Remember, every Friday around lunch time, make sure that you follow us, and you get the notifications somewhere over here, or somewhere over there. And join us, send us questions, that way next week maybe your questions are gonna feature here. Where can they find us?
18:35 Jorge: You could always find us at homes4income.com. That is homes, the number four, income dot com. And before we finish…
18:41 Rafi: Homes, the number what?
18:43 Jorge: Homes, the number four, income dot com. And before we finish, I wanna thank to all of you that have reached out to me via Facebook, everything. It’s been great, a lot of questions.
18:53 Rafi: Be patient. He’s slow answering Messenger. Be patient. He’ll get to it.
19:00 Jorge: I appreciate it. I didn’t know it was gonna be such a success.
19:02 Rafi: Well, actually today we put a post, we’re looking for a general contractor in the Tampa Bay area, and within 30 minutes we have four referrals. So, thank you everyone. It’s great. And again, make sure that you follow us next Friday around lunch time for the next Graystone Brown Bag session. I’m Rafi.
19:19 Jorge: I’m Jorge Vasquez.
19:21 Rafi: Thank you very much, and see you next time.
19:23 Jorge: Thank you so much, appreciate it.
19:25 Rafi: Bye.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay. We serve clients who flip homes in as little as 30 days, as well as clients who hold high cash flowing rental properties.
Unlike other wholesaling groups, we provide clients with a turnkey process at no extra charge. We find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years.