What is the Best Real Estate Investment?

What is the best real estate investment for you? Should you get into a multi-family property or many just a single family home is the best option. In this article, we are going to cover the pros and cons of each.

When it comes to finding an investment property, it really does come down to your investment goals and each different individual, whether or not to start with single family rentals or multifamily will depend on your skillset, your experience and your team of professionals.

Single Family Investments

So let's dive in, let's get started with single family rentals. That could be just one single family house rented to one tenant, ideally for a longer period of time. Typically we have less turnover for the style, but we can also have a breakeven cashflow, sometimes negative cashflow.

The next step up would be a two-door rental, single family property with a secondary legal suite. We'll help you just insulate from a carrying cost perspective and from a risk perspective, if one unit does become vacant and you still have the rental income from the other unit, the single family option rented to one tenant is the easiest to manage.

But if you do have vacancy, now you're looking at zero rental income, but still all of the carrying costs, one benefit to single family rentals is they are typically at a lower entry point as the homes. Aren't cheaper in comparison to multi-family options. And they're a lot of times easier to sell because you are selling to maybe an investor, but you can also sell to a homeowner.

Now financing on a single family, residential home is heavily based on your annual income and your debt ratios versus a multifamily property. That's either zoned commercial or can't qualify for commercial financing, which is five units or more is more focused on the product itself instead of the individual's annual income. So in this scenario, this does benefit the person that's maybe retired or has different sources of income or self-employed, but has the cash reserve and the product type.

It can be easier to scale up with commercial lending because we're looking at more of the product itself and the performance and cashflow and cap rates instead of the individual and their qualification.

Multi-Family Investments

Now let's talk about multi-family. So multi-family can be anything from two to four doors on a multi-family side and anything, five units and up is typically zoned as commercial or maybe residential, but may be able to qualify for commercial financing, which is very versatile in today's investment world.

If you do not own real estate yet, and you're a first time home buyer, you can purchase up to a four-plex as a primary residence, live in one unit and rent out the other three units to live basically cost-free. And if not put a little bit of cash in your jeans to really just accelerate your investing career. This will make it a lot easier to scale up.

It's also a lower entry point because you are moving into it and you do not have to put the full 20% down payment. And you actually can put as little as 5% depending on the price point. And typically somewhere between five and 10%, which is a great way to boost your ROI and also to leverage your existing capital to its fullest.

If you're not going to move into your rental property, and you're looking for a lower entry point, but still with more than one income than a single family property with a secondary suite is a great starting point as it's just a next step up in purchase price point from the single family option. But you're a little bit more insulated because, you know, you have two rental incomes instead of just one. This does lower risk, but also boost cashflow, which is great.

Obviously from a monthly standpoint to building your wealth, but also when we look at qualifying at the bank level and, and helping with your debt servicing ratios, the next step up from a single family home with a secondary suite would be a triplex or four plex.

Now these are still zoned as residential because there are four units and under is another great way to get into a smaller multi-family create that insulation with multiple rental incomes. These can become a little bit more difficult to offload because they're not as desirable as that, that hybrid type of primary residence, although there are some eager investors out there. So this would be more catered to an investor sale down the road as our exit strategy. But typically we do see some healthy cashflow because of the additional rental incomes that we can apply.

Commercial Investments

Now, let's talk about commercial buildings. Typically in these are five units and up traditionally, what investors think of is a 12 unit, a 16 unit 40 unit apartment building. That's, that's maybe a little bit older central location typically. These are are interesting, but we do find they can be a bit harder to offload down the road, as you only have one end user, which is an investor qualified buyer.

Now the hybrid of these two models would be zoned residential with secondary suites, getting us over that those five units. So we can look at commercial lending, but also we can look at residential financing as well. So we can pick the one that fits our needs. At that time. A lot of people will max out their residential financing first and then pivot over to commercial financing so they can continue to scale up and grow their portfolio.

From there. Another thing to consider with commercial property is traditional commercial financing typically will require a minimum of 25% down and usually even upwards to 35, even 40%, depending on the corporation or an entity that's qualifying for that lending product. Now, commercial buildings can be more difficult to find as they're not always listed on the public markets.

Most of the time commercial buildings are listed privately with investment focused realtors, and they're sold from one investor to another investor privately off market. So this is good and bad. This means that they are hard to find, they are aware, but this also can allow for opportunity to bring in joint venture partners that don't have access to these type of properties. And now you have the value of bringing up a commercial building under contract to a potential JV partner and getting that deal done for you and for your joint venture partner.

Which Investment option is right for you?

So in summary, as a new investor, single-family options would be the easiest entry point from a management perspective and a cash in perspective. Now, if you've been studying real estate investing for a while, or you've already managed and purchase property, then getting started in small, multi or larger multi-family might be the way to go for you.

But in every case, it's great to start with a phone call to discuss your short-term and long-term goals. And then we can look at a strategy that fits your investing style and set out a game plan from there.

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