There are many pros and cons with each type of commercial real estate investment asset class. Explore the highlights in the chart below.
Multi-Family vs Single Family
Lower purchase price, same rent.
Due to higher economies of scale, the ‘per door’ cost of an apartment unit is less than a single family home or condo, but can generate the same rental income.
For example, you can buy an apartment building for $90K–$100K per door that rents for $800 per month, or you can buy a condo worth $150K–200K that rents for a similar $800–$1,000 per month. This means you can have almost double the rent for the same amount of investment capital, assuming you have enough to buy the apartment building.
Less vacancy risk
Apartment vacancies are far easier to manage. If you own a rental property and your only tenant can’t pay their rent, you have a risk exposure of 100%, and you’re now paying all operating expenses (mortgage, taxes, etc). When you own an apartment building and tenant doesn’t pay their rent, the rest of your tenants still cover operating expenses. The chance of every tenant in the building failing to pay rent is almost zero.
Lower operating costs
Lower operating costs increase your cash-flow. Apartment buildings share electrical, plumbing, heating systems and more across all units, which reduces maintenance costs. The most obvious example would be that everyone shares one roof.
When you own an apartment building, professional third party management and on-site caretakers become a reality. All tasks (rent collection, maintenance, etc) are handled at one location for all tenants. If you own a single family home or condo, finding third party management can be nearly impossible as they can’t work efficiently enough to make an attractive profit.
Banks see the stability in apartment buildings as well. That’s why all major banks and many lenders compete to lend money against apartment buildings in major markets. This competition drives down interest rates, and the bank’s spread, resulting in the best available commercial lending rates for all commercial asset classes; often close to home-owner rates. CMHC insured financing is also readily available, and used when the premium cost versus the rate discount savings makes sense, usually if longer than a four year term.
Building first, then the borrower. Lenders evaluate the existing and historical financial performance of an apartment building before the borrower. This allows for often easier qualification than what single family investors experience if they own more than a few properties.
Make The Monopoly Move
We have helped dozens of clients make the jump from single-family real estate investing to their first multi-family apartment building. It’s often easier to purchase a 10-15 unit apartment building than it is to purchase that 6th or more single family house or condo. Contact us today to discuss your next steps to success.
Call 1.877.417.2626 x 1 or email with the form below.