The American Education Institute

You can acquire information about the single-family home market fairly easily.  It is one of the most-cited indications of economic conditions in the United States.  “Boom” periods are often labeled such because of the number of new single-family homes being built, bought, and sold.  One reason why this is so easy to track is because every county in the country keeps meticulous records of every parcel of real estate within its borders, and the reason for that is:  TAXATION. 

Within the small residence market, single-family homes are purchased much more frequently than condominiums or co-operative housing units. In every case you see that single-family homes are the most popular.  Nationwide the demand for single-family homes is 86 percent of all possible housing types purchased.  Detailed charts are available in my text entitled “100% Financing When Buying Real Estate.” 

Even though the price for single-family homes usually averages less than the cost for entire apartment buildings, you can generally wield more leverage in purchasing the buildings and maintain a better Return On Investment (ROI). This is on average, remember.  Many fortunes have been made by investing exclusively in single-family homes, however, especially when you can acquire depressed properties in good neighborhoods for a fraction of their value, fix them up, rent them at high profit for years and years, and then sell them for upwards of triple your purchase price.  Nevertheless, you can generally leverage even better with apartment buildings.

This means, for example,you can purchase a large 30 to 50 unit apartment building with no, or very little, money for a down payment in just about the same amount of time it’ll take you to buy two, or maybe three, single-family homes.  You will find, on average, that these are comparatively more flexible sellers of buildings than there are of houses, one reason being that such seller aren’t likely to be living in their buildings.  Properties tend seriously to matter most to those owners who hang their hats in them.

Your chances for a quicker positive cash flow and a more profitable operation begin sooner with a building having so many units over which you have so much control.  All you need to do is raise every rent a few dollars a month with each new lease, and you can build a higher Return On Investment (ROI) almost from from the day of your closing.  Sometimes you’ll be able to close on such a building and walk away with more cash in your pocket than you brought to the closing!

On the other hand, you can never expect to get everything for nothing.  There are a few more disadvantages with apartment buildings than there are with single-family houses.  You do have a greater risk.  There are many more management concerns.  There are more people to deal with, and the tenant profile is different.  Apartment just naturally have greater turnover.  Your maintenance costs will be much greater.  With single-family homes, you can reasonable expect your tenant to take care of such things as mowing the lawn and shoveling snow of the driveway.  With apartment buildings, you will have to do, or pay someone else to do, everything.  This is part of what’s meant by apartment tenants having a much different profile, or mentality.  The typical apartment dweller is simply harder on the place than the typical home dweller is.  Apartment tenants are also much more likely to do damage, sometimes even on purpose.  So you need to be aware of this and adjust your up-front security deposits accordingly. 

Nevertheless, with a little experience under your belt, you may well find (as thousands of other have found before you) that investing in multiple-family apartment buildings can be every bit–and more–as profitable as investing in single-family homes.

Remember that you, as a professional real estate investor now, should always and only invest within your own most acceptable level of comfort.  If you have very little experience living in apratments yourself and are quite used to trusting others not to bother you much, then you ought to consider confining your investments to single-family dwellings.

On the other hand, if you are naturally good at dealing with the public and you know your way around a tool box and are quite willing to go the extra mile to make the extra thousand dollars, then by all means you should try tackling apartment buildings.  But be prepared, too, for the major shock to your system when you graduate from owning and maintaining your own six-unit street-corner city dwelling to handling a sprawling 50 to 100 unit apartment-and-condominium complex in the suburbs.  Which one do you expect will bring in more money?  Which one do you think you’ll have to work harder at to keep profitable?  It’s like everything else in life:  you get out of it what you put into it.

Dr. Eric T. Martin / 100% Financing When Buying Real Estate / 5-17-09