Christian Osgood and Cody argue multifamily apartments beat single-family homes for real estate investing. A $100 rent increase across 100 units generates $120,000 annual cash flow and $2 million in net worth. They show a real 38-unit deal where rents jumped from $350 to $800 after upgrades.
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Today we're talking about multifamily versus single-family, why we invest specifically in multifamily apartment buildings, and why we think you should too.
Hello and welcome back to the channel. I'm Christian, this is Cody. Very excited to talk to you guys today. If you haven't yet, hit like or subscribe. We're gonna dive right in right now.
Now, reason number 1 why we choose multifamily is single-family stupid. It says it on this board, so it's a fact. It is absolutely a fact. But really what it comes down to is scale. Now, we love multifamily because while someone one could buy a house with, let's say, $10,000 to $50,000 down, you could also buy a multifamily building with the same amount of money down. And I'm a huge fan of having more if I can still spend less. I'd rather have 4 people paying me every month rather than 1 person paying me every month. And it just comes down to figuring out how do you buy it and how do you never lose it. And if you're going to figure out how to buy it, you might as well have more tenants than just having the 1 person in your house. Christian, what did you just draw?
More facts. Multifamily is in fact more better.
Oh yeah, there you go.
Because of scale, more units does add that stability. It's so much easier to play the game when you have more people in the building. For example, you take a single-family house. Well, it's great when it's occupied, right? You have one person there, 100% occupancy, it's glorious. Well, the problem is people don't live in one location forever. Renters, they could have a larger family, they could have a kid.
Absolutely.
They can get married, they can move, new job. All these different factors can affect that. And you go to 0%, which puts you in a place of negative cash flow.
I don't like having to pay my mortgage.
I do not either. That is against our principles of you need to buy deals that cash flow and retain cash flow. Almost impossible to do with a house because your tenants are probably not going to stay in there longer than you own the property.
Now let's talk about competition, because when it comes to competition, I don't like getting emotional. When buying real estate, you know? Now, oh, I get a little emotional other times, but when it comes to buying real estate, I don't want to be emotional. There's enough buyers in the multifamily space that are just looking at numbers. But when it comes to single-family, yes, they're investors, but there's a lot of people looking to get their entry-level housing, or they're looking to get that next home. They're doing the move-up step in their little cycle. They're starting their family, they need a little bigger house, and instead of renting, they want to buy. So now I'm competing with people that are just emotionally worried about, oh, I have to get the house that's perfect, and they don't care about the numbers, which can outprice you, especially on the houses.
Yeah, they don't care about what makes financial sense. The pricing is not based on that. It's based what are people willing to pay to live in this asset. Makes houses very, very difficult because people may be willing to pay more than it actually would make sense as a rental.
Now, moving forward from that, we get past the emotions, financing, Some people don't agree with me on that. That's okay. They're wrong. But financing is better for apartments. When you get to bigger apartment complexes, there are better debt products than there are for houses. Now, yes, you can buy with an FHA loan, 3.5% down, you can buy your house. However, there are better debt structures on big apartment complexes. And so we're urging people to go a little bit bigger because, yes, while you can get started with houses and you can get started with small multifamily, The bigger deals have way better debt options.
And by the way, I'm here talking, I'm in a house that I bought before I bought my multifamily, single-family property.
And I'm in a house that I didn't have to buy because I let my buddy do it.
Yep, then I bought a duplex, then I bought a duplex, then we bought a 38-plex together. Notice we still buy some duplexes, but we tend to buy a lot bigger assets and we don't invest in houses as an investment. This is why. You just have more options. One thing people might say is is, but Cody, 30-year fully amortized debt. I never have to refinance, there's no balloons.
Yeah, you may have to be a little bit more active with this other debt product. With the apartment debt, typically you're looking at a 10-year balloon. And so yeah, you got to think about it 5, 6, 7 years in. Oh, what am I going to do? Am I going to pay it off? Am I going to sell it? Am I going to refinance it? But that doesn't mean you shouldn't do that. That's not a reason not to do it. You just have to be a little bit more active half a decade into the future. You can lock in your rate and it can be fixed, paying itself down on a 30-year AMM. It's just gonna have to be refinanced in a decade. Not a big deal. Yeah.
Now another thing we really wanna hit, I wanna hit this again, the scale piece. When you're actually growing your portfolio, you're building your net worth. If you're doing it one house at a time, it's going to take you forever. I do not want to have 100 loans on 100 properties. The fastest way to do it would be to buy a 100-unit building with one loan. Now, on some of those big properties, if you're just starting, you're going to be competing with a lot of big players for 100-unit buildings. So you're probably going to do it closer to the way we did. You're going to buy a 12-plex, you'll get a 38 in there, you'll add your way up through midsize multifamily. It's the most likely path. The point is, if you can get to 100 units in say 4 or 5 transactions, it's a lot easier than doing 100.
Mm-hmm.
Now, mathematically, why would we want to scale to 100 units? I'll turn this over to the math guy, but just say in this hypothetical scenario, you have 100 units.
Yeah.
You have a market, we'll call it a 6-cap market so the math is nice and easy. Okay. So if you bought all these in cash, they yield 6%. If you raise rent $100 on 100 units—
I get an extra $10,000 a month. We're rich.
That's fantastic. How much money does that make on a net worth gain? 100 units, $100.
Where we buy, an extra $10,000 a month, $120,000 a year. We're in a 6% rate of return market. So if you take the $120,000 a year in new income divided by 0.06, that's $2 million to your net worth. That is the easiest $2 million you can ever make. Now there's some people out there that are going to say, well, that's not very nice to your tenants. Well, don't raise it above market. Keep your rent below market, but just bump it up a little closer to where it is from where it was. If it's at $800 and market rents $1,000, take it to $900. You can still pick up your $2 million.
Practical application here. We had our 38-plex, first deal we ever did together. The rents in some of those units in Washington State, was $350 a month.
Yikes.
When we take— and market at that time was probably, what would you say, for a studio, $800 a month?
Yeah, $800.
Okay, so we're less than half of market price. When we did a $200— not $100, but $200 rent bump— we're taking them a portion of the way to market. They're still getting a phenomenal discount.
In addition to being a good landlord, when you raise rents, we gave them new appliances, gave them all the new little features. We did that out of cash flow. It's way easier to get cash flow on apartments than it is on little houses.
We're not fans of just raising the rent to raise the rent. While that does make you money, give something first. So a little strategy— this is a pro tip— if you buy a new property and you know rent increases are part of your plan, figure out what things you can do to really cost-effectively improve your community. Some new appliances, we repainted the buildings, we added actual rules to the parking, which there never was. Just little things where it's like, hey, the new owners care. The money that I'm paying is being reinvested in the property. That little thing you do first, spend 45 days doing it. So day 60 of ownership, you get a small rent bump and people are happy to pay it. But you do that when you scale, like you just said, we make $2 million on little improvements and a little rent bump.
And if you have the same 100 houses, you'll still get the same $120 grand a year in net cash flow bump. However, that doesn't affect your values. So that's it for today. We're talking about why multifamily is better than single-family.
Fact.
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