What Is the Right REI for You?


by W.J. Mencarow

Many real estate investors prefer multifamily properties over houses. The cashflow is better per square foot, and it is more depend- able. If a tenant moves out of your rental house, your cashflow stops. Depending upon how much work the house needs, the demand for rentals, and the quality of applicants, it could take a month or two, some- times more, to find a tenant you are willing to trust with your house. If you own a multifamily property and a tenant moves out, you still have cashflow from other tenants. Plus, multifamily units are smaller than houses, so there is less work to be done between tenants, thus a unit can be back on the market quickly. And multifamily rents are lower

than houses, so you have more ap- plicants to choose from and can rent them faster. Another advantage of multifamily is that you can live in one of the units rent-free as your tenants pay the mortgage. You can also be your own manager, saving you a lot of money. Qualifying for a loan on a multi- family building is easier because lenders look at cash flow. That is not the case with rental houses. Another advantage is that expenses on multi- families are lower per square foot than houses due to economies of scale. For example, replacing a roof on a 15-unit building, while expen- sive, is less than replacing roofs on 15 houses. Before you buy a multifamily

building, remember that, like any investment, it has disadvantages. One is that it costs a lot more than a house. While a house down payment might be a few thousand dollars, it will be more for a plex (duplex, tri- plex, fourplex) and many times that for an apartment building. And you will need deep pockets to maintain an apartment building. You save be - cause of economies of scale, but the scale is big; you could find yourself paying for the repairs/replacement of numerous air conditioners every year. And don’t forget yard mainte- nance. Tenants in houses take care of their yards (mine do); not so in multifamily units. Unless the utilities are separately metered (usually the case in apartment buildings, not

76 | think realty magazine :: september 2020

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