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Multifamily Real Estate Probably Wont Make You Rich

Let me emphasize RICH, not the same as WEALTHY

Controversial post alert, but hey come at me 🙂 

Ever since I got into Real Estate Investing there has been the age old debate of:

What kind of asset class is the best?

As more and more people became educated on the topic, the trend shifted towards BIGGER is ALWAYS BETTER, and those of us that continued doing residential real estate were regularly looked down upon by the Multifamily elitist.

They seemed to be correct with their thinking for a while, but as I have gotten to meet more and more Multifamily Investors and heard more about their investing and business, I start to have some concerns.

I look at the AUM (Assets Under Management) they brag about as well as their rapidly reducing cash positions as the economy adjusts and find myself a stronger proponent of Residential Real Estate than ever before.

The view was larger Multifamily meant:

  • Higher Asset Values with a SINGLE transaction means less work

  • Easier debt via commercial loans and syndications

  • Valued based on NOI so easier to force appreciation

  • Easier Property Management since all the units are in one place

While all of these are true they left out the downsides of these points which are:

  • If you don’t find a homerun for your single transaction, then you probably don’t buy anything!

  • Commercial Loans and Syndications have time limits via Balloon Payments and ARMs (hence why people are getting WRECKED right now)

  • Forced Appreciation only works when Cap Rates stay favorable (out of your control)

  • Scaled Property Management is a full time business in itself.

Now Residential Real Estate of course has its ups and downs as well, but the two reasons that Residential Properties are much easier to get RICH with are due to the QUANTITY available, as well as the SPEED of the transactions.

Let me emphasize again I am talking about getting RICH here, not WEALTHY.

Many of these Multifamily folks no doubt have a higher NET WORTH than the standard Residential Investor, but that’s all on paper!

Their income tends to NOT be great, and they are sitting on mostly unrealized gains. To make things more fun, as the economy continues to shift against their favor, those gains appear to be unable to be realized even if they wanted to.

Now if you don’t mind just living in your zone and get excited seeing your paper net worth number grow to each their own, but if you want TRUE FINANCIAL FREEDOM you will be hard pressed to get that from Multifamily Real Estate.

With 140 million residential homes in the US and a sales process that allows you to cash out any forced gains in just a couple of months by selling on the market, its not unfeasible for ANYONE to replace or create another salary (or many multiples of their salary) with Residential real estate in just a couple of years (or even less than that).

Average home price in the US at the time of writing is about $430k according to Redfin.

In this price range it is VERY common (with the discounts we regularly buy at) to be making $40-60k PROFIT for EVERY acquisition we do.

Do that 5 times, you just stacked up $200-$300k.

Do that while working your W2 to pay your bills (if you can stand that) and you just racked up some MAJOR money very quickly.

Of course you need the pipeline to find opportunities like that, but multifamily people are doing the same thing, they are just less in control of the outcome and have way fewer opportunities and harder exit strategies.

Anyways, I’ll get off my soapbox here, but my point of this whole thing is just to make sure that your INVESTING and BUSINESS STRATEGY align with your goals.

If you want to pursue the Collecting Keys mantra of getting MASSIVE INCOME before PASSIVE INCOME, then Residential will be the way to go hands down.

I know many of you will disagree, so hit me up on instagram and let me know what you think!