Ep 45 - Single Family vs Multi Family

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.

Podcast called Freedom through Passive Income.

That's right. And now today's episode is called single family versus multifamily.

Yes.

And so real quickly, I want to do a quick definition. Single family properties is it's not just a single family probably property, it's one to four units. So a single family, duplexes, triplexes and fourplexes, those have all been combined into what's called residential real estate, which is so we always call it one to four residential real estate. So a lot of times you'll still hear hear us talk about single family properties. And they're actually duplexes, triplexes or flu. But then there's commercial properties, which is five units and up. And that's we typically call multifamily. Occasionally people will call multifamily the duplexes, triplexes and fourplexes.

Which is true.

Which is technically true, but we like to try to keep it clean. And so anything five units and up is multifamily. Anything four units and down, a single family. And so that's how we at least.

For the purposes of this video. That's right.

Okay, so one of the pros main point of single family is the price point. You know, the. When you look at multifamily properties, you're millions of dollars. And so. Well, I mean, there's single family properties that are millions of dollars, at least the ones I like. But, but typically they're the under $100,000. You know, we're buying, you know, we bought properties for $15,000 for. Well, we bought properties for $5,000. So it's so single family properties. Obviously the price point is definitely a pro. Another thing is for single family properties, the tenants stay longer. There's almost a pride of ownership. They treat it like they're owned, you know, and so it's a lower turnover. They take care of the property, they mow the lawn, they plant flowers, they, you know, they take care of the snow when you're in an area that has snow, which we're supposed to get today, apparently. Lovely. But anyway, so like I said, there's a private ownership there and they actually take care of the property as if it's their own. And you get can't. Boy, those are the best tenants ever.

Yes. Another pro, single family properties is there's a bigger pool of buyers. So even the duplex, triplex, fourplex is in this category here because owner occupants, they are more likely to buy that single family house than just an investor. You could be selling it to an investor. But you also have that big, huge, you know, pile of people that are going to say, hey, I actually want to live there and own that property. And why I say 2 to 4 units this is true as well is because half hacking has become so popular that some people will be like, hey, I want to live one side and rent the other side out, or I want to live in one of the units and rent the other three out. So it's just a larger group of people that are looking at properties are one to four. So you have a better, easier exit strategy.

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Please and thank you.

Yes, thank you very much.

All right, so some more pros of single family is pest control. So unlike a multi family, when there's a issue with pest control, it easily, once that we go and exterminate the one unit, they just scurry, scurry, scurry to the nearby unit. So it continues to be a problem where single family, you can just, you know, it's kind of a one and done. You know, go ahead and get in there, take care of it, and then boom, it's done. Also, market diversity, this is great because if you're going to buy a single family house, you could buy one here in Dayton and then you can buy one in Cincinnati, you can buy one in Middletown. So you're spreading out exactly the locations of where you're buying those properties in order to help mitigate any situations where there might be a steel plant that closes down and then a lot of people start moving out of it. You've got your properties in different locations, whereas a multifamily is one big building in one particular location. Now, we mitigate that by buying multifamily in a bunch of different locations. But it's a lot easier to do that strategy when you're buying single family. And then it's easier to evaluate and underwrite. And I say that because underwriting multifamily properties, it's a lot of work. It's very complicated. And you make one small $25 mistake on a 300 unit property, it's going to do you in. So It's a lot easier to evaluate. Even our private lenders, when we first started, we would send them a duplex and like they didn't understand the comps and how to evaluate. So it was an education process. So that's another pro for single family.

Yes. So the multifamily pro is obviously the first one is cash flow. Our favorite. And so again, that's obviously the top one.

Yes.

Number two or whatever order these are in is no 100% vacancy. Well, I mean, unless it's some sort of a special situation like apartments, but typically you would not have 100% vacancy, you know, so you might have one or two units vacant, but you still have other people making their payments. So you're never without cash flow.

Yes. Also forced appreciation. People don't know exactly what that means necessarily. We'll probably do a video about it. So you can just look it up and then we can explain it in bigger detail. But the short summary is that you can increase the income or decrease the expenses and force the appreciation of the multifamily to go up because they're going to evaluate the valuation of that property by your net operating income. So as soon as you make that number better, then you've changed your valuation of the property, which is huge.

And then also a multi family, one roof, you know, now granted, we'll use our 56 unit. Now granted there's four roofs, but still that's four roofs and not 56 roofs.

That's right.

So that's a huge difference. And also another huge difference is one closing. So the 56 units and then the 15 single family properties that we did.

Yep.

One closing.

Yes. Yeah, that was massive. So that was just even buying a package. Right? You're doing it once. One inspection, one appraisal. I mean, they had to hire an appraiser and they had to go out. But you just went through the process one time instead of having to do it over and over and over. So also cost per door on multifamily. So we just did a video about our 56 unit. The horror story, if you have not watched that, you absolutely like talk about listening to a crazy, crazy story that in the end we're going to win and win big. But it was a nightmare to go through. But when we bought the 56 units, if you divided the cost per door, we bought it for 1.3 million and it was like 23,000. And I think that was just on the cost per door, I think for a 48, I can't remember, but 23,000 a door. You're not going to get that necessarily in the single family world if you package a bunch of properties together. So I like that as a pro. And then economies of scale. So even our rehab team, they went and they bought everything in bulk and they threw it in one of the vacant. They were able to do the rehab cheaper, which passed along to us. And so we got a lot of savings of people being able to go to one location, be able to buy things in bulk so that just the management of the entire process. Even property management companies will charge you less on multifamily properties. And many times you get if it's like 75, 80 doors or more, you can have on site property management, which is a totally different ballgame as well. So I just love the economies of scale piece. Awesome.

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