Multifamily Real Estate - Top 5
Economy of Scale
Single family properties or small multifamily properties do not have sufficient revenue to hire full time staff. Because of this, owners are typically required to handle all day to day operations of the property. With a multifamily, revenue is sufficient to hire full time staff to operate the property.
Cost of property management, repair materials, service contracts benefit the economy of scale.
Thanks to the multiple units in a multifamily property, laws of average for vacancy and maintenance costs apply. An Investor in single family homes will need many units to apply laws of average on his portfolio: a bad tenant can result in burning up all profits made in a year.
Contrary to a single family rental property, the depreciation on a multifamily asset can be accelerated thanks to a cost segregation analysis.
The value of a multifamily asset is based on the Net Operating Income (NOI) - income minus expenses - and the Capitalization Rate of the market. There are three ways to force appreciation by increasing the NOI: increase income, decrease expenses, or a combination of both.
Finding the deal, underwriting, negotiating, closing and managing. Those are the tasks that must be repeated for each acquisition of a real estate asset. While less complex, single family properties must have to be repeated for each door. A single multifamily acquisition allows one to run a more intense process once to acquire 5, 10, 100... 1000 doors!