Your First Investment Should Be a 10+ Unit Multifamily

Tim Milazzo
August 16, 2017

If you care most about stable, cash flowing investments, (and let’s be honest, you probably should) 10+ unit Multifamily is your best bet as one of your first real estate acquisitions.

Concentrated management

Managing 10 or more single family houses would mean keeping track of 10 assets, in 10 locations, each with their own characteristics and, if not located in a close vicinity, potentially different municipalities and local governments to deal with. For practicality alone, concentrating on one multifamily asset with more units is a better return on your most valuable resource: your time.

Outsourcing property management? Even better to pay one company to handle a single multifamily asset, than spreading it around (and paying more overall).

Higher cash flow

More units = more revenue. If you can add more revenue without adding as much cost, that’s higher cash flow. Need I say more?

OK, let’s say a little bit more. In addition to a net gain in cash flow through leasing more units, larger apartment complexes can also add to the bottom line through revenue-driving amenities, either through a recurring amenity fee, or through discrete sales on anything from parking spaces to laundry machines to storage.

More bang for your buck

Multifamily investments are often cheaper on a per-door basis than single family rentals. Additionally, CapEx applied to an apartment complex can increase the value of every unit collectively. Amenities like a fitness or community center, or features such as a doorman can boost rents across the board.

Less volatility

If you lose a tenant in a single-family rental, your cash flow is completely gone until you can replace that tenant. Similarly, in office or retail investing, losing a key tenant can derail your Cash Flow until you (hopefully) lease back up.

In a 10-unit Multifamily? At reasonable leverage, losing a single tenant won’t sink you into the red. In many markets, it’s also a more liquid market to rent out an apartment than it is to find commercial tenants for office, retail, or industrial. Multifamily will typically have a more steady Cash Flow over the course of the year than hotels as well because your tenants sign leases which are typically around a year long, vs the supply and demand seasonality of hospitality.

Finally, larger apartments are less volatile than smaller multifamily (<10 units) because the more units you have, the less percentage a single unit represents. Boom, Science!

Commercial loans don’t have to be scary

Some investors stay away from Multifamily 5+ units because that brings them into commercial loan territory, and they’re more comfortable with a traditional mortgage for single-family homes or 2–4 unit multifamily. But it’s 2017, and a commercial loan doesn’t have to be scary! There are great small-balance loan programs from Fannie Mae and Freddie Mac for loans between $1M — $6M (can be slightly smaller or larger in some markets), long-term fixed rate financing from HUD for larger deals, plus a long list of local, regional and national banks, private lenders, and insurance companies who love providing multifamily loans for strong borrowers. Challenged credit? There are stated income loan programs that can help.

Wading through it all yourself wouldn’t be easy, but luckily you don’t have to. Online loan platforms like StackSource take out the guesswork in finding the right lender, by automatically matching your deal to a targeted, competitive set of commercial lenders (both banks and non-banks). Find out more about us below.

Find the right commercial real estate financing with StackSource by getting instantly matched to the best debt and equity options for your project from our nationwide network of capital sources. 

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