Like many real estate investors, my first investment was a single-family house. This is the go-to strategy for new investors because the barrier of entry is low and the business model is easy to understand. I started out flipping houses and buying rentals and continued this strategy for over 15 years. I used the BRRRR (Buy, Renovate, Rent, Refinance, Repeat) method to acquire rentals and accumulated a small portfolio. Despite having success with single-family investments, I recently made a pivot as I have shifted my focus to other real estate investments. Below are 3 main reasons why I made this shift:
1. Hard to Scale
One of the biggest issues with single-family investing is that it’s hard to scale. You normally buy one house at a time and need at least 10 – 20% or more in capital to put down on the purchase. This makes it difficult to build a portfolio quickly and efficiently. Depending on your financial situation it may take a several years to accumulate a 10-unit portfolio. Without scale it makes it difficult to hire professional property management at a rate that keeps the deal profitable.
2. Time Consuming
Real estate investing is often touted as a passive investment; even the IRS classifies rental homes as passive. Although there are real estate investments that are truly passive, very often a single-family investment is not one of them. No matter which strategy you deploy it is time consuming. Flipping houses requires the coordination of contractors and selecting material, which takes a considerable amount of time. If you have ever done any sort of renovation, then you know it is not uncommon for contractors to not show up when scheduled or at all. This can cause serious project delays and potentially lead to being over budget. You may be thinking investing in rental homes is a better option. With rental properties, you must screen tenants, collect rent, and manage maintenance requests all of which can take up quite a bit of your time if doing it by yourself. Even if you hire a property management company, you will find yourself spending an extensive amount time managing and overseeing the management company.
3. Superior Investment Options
Finally, there are better real estate investment options available that are obtainable for you such as syndications and more specifically for our firm, multifamily syndications. A multifamily syndication offers more cash flow and income due to achieving instant scale versus a single-family investment. You can acquire a 50-unit apartment community at one time whereas you may need to complete 50 different transactions over 10 years to purchase 50 homes. Economies of scale with apartments allows for lower expenses per unit and the ability to retain professional property management. Most importantly, syndications allow individuals who don’t have millions of dollars to invest passively in larger deals by pooling resources together with other investors. You can invest passively in a syndication with the same amount of money it takes for a down payment on a single-family investment.
Final Take
I am thankful for the success I have achieved through single-family investing; however, with the challenges it creates and the advantages of multifamily syndications, single-family investments are less desirable. If you would like to learn more about syndications to create passive income, explore our website at www.shhequitygroup.com.
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