Today, we are giving you the reasons why single family properties are a better investment option than multi-family ones and advising you to consider them first, especially if you are just starting your real estate journey. As we uncover why single family residence vs multi-family property is such an important debate for many (future) investors, learn why single family performs better, how we got involved in real estate, and why we no longer owe multi-family.
What You Will Learn About Why Single Family Residence vs Multi-Family:
- People who succeeded with Cash Flow Savvy
- How we started our real estate journey
- Transitional vs long-term tenants
- Why single family residence performs better than multi-family
- Duplex vs single family home example
- Why we no longer owe multi-family
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Speaker 1: This is Theriault Media.
So you want to be a real estate investor, but you don’t want to do the work? If there were only a way where someone else could do if for you. Now there is. Tune in here each and every Tuesday, on The Epic Real Estate Investing Show, for Turnkey Tuesdays with your host Mercedes Torres.
Mercedes Torres: Hello, and welcome, welcome to Turnkey Tuesdays: Real Estate for Busy People. My name is Mercedes Torres, and I am privileged enough to be partners in crime with Mr. Matt Theriault, the gentleman who created The Epic Real Estate Investing empire. For those of you tuning in again, welcome back. Good to see you again, and make yourself comfortable.
For those of you new to Turnkey Tuesdays, you know, I created this show to cater to busy professionals who understand the importance of real estate, but they either don’t have the time to do real estate themselves, they don’t have the knowledge because they’re brand new at it, they just don’t want to learn every single detail there is to learn about acquiring real estate investing, so I created this show to give you an ability to dip your toe in the water, and to share what it is to get involved in real estate investing, and hopefully, you’d consider using a turnkey real estate investment company that will allow you and help you start building your real estate portfolio. So, that is the purpose of the show, and welcome if you’re just turning in for the first time.
A quick shoutout to the people that have purchased turnkey real estate investment properties this week with Cash Flow Savvy. First and foremost, congratulation is in order to Tracy and Tyler M. from Southern California. They purchased not only one, but two cash-flowing properties in Birmingham, Alabama, so congratulations to you. They were both referred by a friend of our show named Tom. He purchased a portfolio of about 13 properties doing a 1031 exchange, and Tom referred them to us, and hopefully, they were just as happy with their service as our friend Tom was. Congratulations, guys, and I look forward to watching you grow.
Sanjay K. and his with Smita from Indiana, you purchased another property in Indiana, and this was your fourth acquisition with Cash Flow Savvy. Sanjay, I am honored to serve you. You are an absolute pleasure to work with. You’ve even taken it a step further, and you have already contacted our financial engineers. Sanjay is creating portfolios, not only for asset protection, but he’s really big on becoming a full-time cash flow investor. I don’t know if full-time meaning quitting your job, but acquiring enough to be able to have the ability to quit your job if you wanted to. Congratulations on your fourth acquisition, Sanjay and Smita.
Dan and Yuliana from Illinois, welcome. I know you closed on your first investment property in Indiana. I’ll have to say, this was a little bit more challenging than what we always want it to be. There were bumps along the way, new discoveries, but I will have to say, Dan and Yuliana, you held on, and as a result, you acquired an amazing investment property with phenomenal returns. Not only do I extend extra kudos for hanging on, but really for just believing that this is going to be an awesome investment, and just with what has transpired it already is an awesome investment, so congratulations to you and your amazing returns.
This week it was a pleasure connecting with [Sharl 00:04:25] W. from Florida. He is a real estate agent and knows that cash flow in his market is not so great, so he’s ready to start building his real estate portfolio. Sharl, I look forward to serving you.
Rob R. Rob R. from North Carolina, you recently downloaded the Frustrated Investor’s Guide to Passive Income, and Rob, I know you were surprised when my assistant Michelle reached out to you; yes, we are real people here. It was a pleasure speaking with you, Rob. I gave Rob some insight about a HELOC, and just leveraging as much as possible without overleveraging himself. Rob is a hard-working teacher. I do say often that teachers are not given the credit that they deserve, so thank you for what you do, Rob, and I surely hope to serve you and to watch you create additional income for you and your wife.
Alex R. Alex R is a police officer from Los Angeles, California. Welcome to Cash Flow Savvy. Alex and I spoke about three years ago, and he was that diligent person that took crazy notes, and three years later, while he did acquire some properties along the way in his own backyard, he acknowledged how much work it took, how much sweat, how much tears and heartache it cost, and so he jumped on the bandwagon, and Alex just chose a Cash Flow Savvy property in Alabama. You picked a great property, and I cannot wait to close that for you and start building your portfolio.
Jason P. from Illinois. Jason has been listening to Matt and I, he said, for quite some time. He is a Rich Dad Poor Dad fan, and he wrote me a heart-filled email, just about his position, where he was in life, what he wanted to do. He’s now a dad, has two kids, he’s married. He opened escrow, and I sent him his first set of properties which were, by the way, all amazing, and he passed on his first set of properties. I remember when I got the email that he passed, I never take anything personally, but I thought, “Oh, he passed on a great property, but, okay, there’ll be more.”
About 30 minutes later, he emails me again. He’s like, “Mercedes, I got cold feet, and is that property still available?” Luckily, I had not sent that property out yet, ’cause I was in the middle of doing something else, and I said, “Absolutely. The property is yours,” so he picked up an amazing property in St. Louis. Our St. Louis market is booming. He got cold feet and acknowledged it, so Jason, I not only want to acknowledge you for just saying, “Holy cow, I got cold feet,” but I want you to know that that is completely normal. So many of our investors get cold feet, but I acknowledge you because you actually put your feelings aside and said, “I’m going to do it because I have a bigger ‘why’.” So, kudos to you, buddy. I am going to hold your hand every step of the way, and know we are truly just an email and a phone call away.
Ladies and gentlemen, I share this with you because I can’t tell you how many times I have gotten cold feet on my own personal properties, and I’ve done hundreds and thousands of transactions, so know that getting cold feet is completely normal. In fact, you would be abnormal if you didn’t get cold feet, but there’s a bigger picture to everything, and know that in real estate investing, almost all mistakes that can be done can be corrected and mitigated. I hope that serves someone, I hope I touch someone’s mind and heart with that comment because getting cold feet is perfectly normal. Just like Jason, and Jason, again, I commend you for taking that step forward.
So, enough about who’s making a difference in their life. I want you to make a difference in your life, so today, I’m going to talk about one of the most famous questions that I get on a regular basis. It has to do with why I’ve chosen to invest in single-family residence as opposed to multifamily, and why don’t I heavily promote multifamily with Cash Flow Savvy, and just in our podcast?
The answer is absolutely easy for me to answer because I’ve been doing real estate investing since 2002, 2003. I’ve done well over 2,000 transactions in total, and of those 2,000, about 250 of those have been mine. Now, I don’t share that to brag and to boast. I share that because there’s not a whole lot that I haven’t seen in real estate investing. I mean, you name it, I’ve encountered it in some way, shape or form. Maybe not directly with me, but it could’ve been through maybe a seller, or a buyer, or a transaction that I was involved in, closely involved in.
Now, much of what I share on the podcast, actually almost everything I share on the podcast is from personal experience, and I share it because I want you to know that a lot of the things that happen tend to be normal, and there’s always a solution to them in some way, shape or form. Now, I don’t share to brag, but I do share because it’s important to me that you understand that I’m not a financial advisor. I’m not a guru.
Matt and I talk about gurus, and one of the reasons we have such a pet peeve with gurus is because a lot of them make their money selling education. We have made our money with real estate. We’ve done enough transactions to know how it is to maneuver when you get stuck in a deal, but ladies and gentlemen, it’s no secret: I’ve made money with real estate investing, but I’ve also lost a lot of money with real estate investing, so I have a ton of personal experience, and I want to say, there’s
… nothing bad with multifamily properties. They’re a whole different animal than a single-family residence. That’s not a secret. So there’s no secret that Matt and I have owned an eight-unit building, a 10 unit building, a 14 unit building, and a 40 unit building. I want you to notice that I said we owned, past tense. I no longer own them. And there’s a reason for that and I’ll share it with you.
It’s not a secret that Matt and I live in beautiful Southern California. We happen to really enjoy the weather here. It’s about 75 to 80 degrees over 300 days a year, and Matt and I are water babies. We like to live by water. Matt is originally from Newport Beach, California, beach town. I’m originally from Puerto Rico, island. So we love the water. We love the sun. And this is why we have chosen to live in Southern California.
Having said that, cash flow in Southern California is really difficult to obtain. I say difficult because it’s not impossible and there are certainly people that actually do, do it. But when Matt and I started investing heavily in real estate, it was right during the turn of the market. We started investing in 2002. We jumped into personal investing right around 2006. Matt was a real estate agent. I was in the banking part of it, so the financial aspect of it. Then the turn of the market happened in 2007, 2008 where we didn’t have a whole lot of money. We had horrible credit. So we knew that there were markets in middle America where cash flow was possible because at that time it was impossible for us to cash flow in California.
That’s when Matt and I created this proprietary algorithm that allowed us to pull information from government census and it allowed us to really zone in on purchase price to rent ratio and median household size and median household income, and it really helped us focus and target rental markets in middle America because I wanted to be in a market where there were going to be no shortage of tenants. I want to be in a market where it is predominantly a rental market. Thus this helped us identify the markets that we’re currently in today with Cash Flow Savvy.
Now I share all of this information, I’m getting to the multifamily and the reason we don’t heavily invest in it, but I share all this information to let you know that we’ve done our share of research and we really have focused on what is working and what has worked. As you know, history tends to repeat itself. Shame on those that don’t take history into consideration.
Now Matt and I always talk about nobody has a crystal ball to determine what the future is going to be like. The same thing goes for the market. Nobody has a crystal ball to really determine what the market’s going to do within the next three months, six months, 10 months down the line, but we have an idea.
All that said, is we’ve been investing for quite some time and we’ve been able not only to study the market from a distance but from our own personal portfolio. Having said that, with all that information, Cash Flow Savvy coincidentally was born in 2009 because of this algorithm and because our listeners did our course and they fully got immersed into trying to become a real estate investor while still holding down their full-time jobs or still being involved in their career. And while they understood the importance of real estate and really wanted to dive in, they realized they had no time to do it.
So full circle, I share all of this because with all of this combined data and information, we were able to extract enough data from our own personal portfolio and we now had a point of comparison with our own portfolio and what the market was doing and we were able to analyze the difference of the performance between a single family residence and a multifamily residence, and I’m specifically talking about smaller multifamilies that can be conventionally financed, so anything between two and four units. I’m only going to talk about these two and four units because it’s a little bit more tangible for the average investor starting off. I’m not talking about the big 40 unit buildings or the 100 unit buildings. I’m talking about the smaller ones, two to four units and compared to a single-family residence.
Mind you, there is still validity to my point with the 100 unit building or a 40 unit building, but just for demonstration purposes and because I want you to understand just the analogy and the proof in the pudding, I’m only going to use the two to four units compared to the single-family residence, okay?
What we learned personally and with Cash Flow Savvy is the price point of the rent dictates the caliber of your tenant. I’m going to say that again. The price point of your rent dictates the caliber of your tenant. When I mean price point I just mean rent and the purchase price of the property. It also tends to dictate the location and the neighborhood which are really good indicators of who is going to be renting your property because the rent amount generally can tell you who can afford to rent your home.
Now let’s face it. We all need tenants to pay their rent because this is what creates your cash flow. So it’s really important that we get a tenant in our property that can actually afford to pay rent and that’s going to make their rental payment a priority in their life. That generally is a person who has a family and who has to put a roof over the head for somebody else. I’m using this as an example because again I’m speaking from personal experience.
A tenant that could afford to pay $500 a month is clearly not the same caliber of tenant that could afford to pay $1,000 per month. For example, the tenant that could afford that $500 is likely to be what we consider a transitional tenant. Now I call them transitional and I’m saying transitional based off of the tenant that can pay $1,000 per month. This $500 a month tenant generally works for retail.
Sometimes they’re still in school. They’re doing some kind of internship program of some sort. They’re often not as stable as they want to be. And it could be because there’s a transition in their relationship. They just got divorced or they just broke up with their partner. They tend to be a little younger and for the most part, they’re not as established as they want to be. So they’re experiencing some type of transition in their life, and that generally means a transition in work or in transition in their career or a transition in their own personal life. Sometimes that’s even a death. There’s nothing wrong with this tenant that could afford to pay $500 a month. They just are not as stable as a tenant that can pay $1,000 a month.
On the flip side, that tenant that could afford to pay $1,000 a month seems to be a bit more stable in their employment. They have acquired the education that will allow them to receive some type of a degree or a certificate from a trade school of some sort. They have a little bit more training for their job and the acquisition of their job generally tends to be something that undergoes several interviews.
Now we’ve been able to determine this based off of the rental pool of our own personal portfolio. Most of these $1,000 tenants have a family, they have kids in school, and some of them hold managerial positions. So they have a team that they have to oversee or look over or somebody has to report to them in some way, shape, or form, making their job a little more solid so to speak.
What we have found is that while the numbers on paper for a multifamily look really appealing, real-life data has proven to us this is not always the case. With a turnover of multifamily, the vacancy time spent to getting the property rent ready and finally getting a tenant in generally takes about 60 days, give or take a week or so. That’s two months of rent that turnover requires. Sometimes it’s less I’ll have to say, and sometimes if it happens during the winter it could be a little more. But what we’ve been able to determine is because of the turnover in multifamilies, the performance of a single family residence is often better than that of multifamily.
Now let’s break down the numbers, specifically talking about multifamily that can be conventionally financed like a duplex, a triplex, or a quad. Let’s take for example a duplex. Let’s take a duplex[inaudible 00:22:00] that’s $90,000 okay? So two units, $90,000 in middle America in one of our rental markets. Each side renting for $500 per side. That’ll give you a gross income of $1,000 per month. Now let’s take a $90,000 house, same price point, that rents for $950, closer to that $1,000 mark. Now, these are very realistic numbers ladies and gentlemen, for today. Of course, we have to take into consideration the mortgage, the taxes, the insurance, the property management, maintenance, all of that, and I’m not going to break down all the numbers. I do this ad nauseum on other podcasts. Today, I’m just talking about the big picture. I want you to really understand the big picture that I want you to consider when you’re thinking about jumping into a multi-family and why sometimes it’s best to consider a single-family residence.
I always do one-year leases on all of my properties, even if my tenant wants a two-year lease. Unless I’m going to increase the two year lease, and generally tenants want us to decrease the amount of rent, but I generally stay away from doing longer leases because I’m a big fan of increasing the rent just a little bit, the minimum that I can increase every year when they renew their lease. So I like to do one-year leases on all of my properties but despite that, our average tenant in a single-family residence stays three years and eight months on average.
Now, the tenants on our multi-families, they tend to stay on average one year and two months, that’s huge. So just think about. In a multi-family, every time your tenant moves, you need to give up 60 days, remember we talked about it takes average 60 days to get the property rent ready and re-tenanted. So you need to give up two months of rent every time your tenant leaves and if your tenant is leaving every year and two months, in a multi-family, you’re having turnaround every single year and that’s not great. So generally speaking, the inconsistent pay of a $500 per month tenant in your duplex, due to their transitional life, combined with their short-lived stay, your rents for your multi-family ends up costing you a lot more money than the difference in the rent that you’re getting from your one, single-family residence and it’s due to the stability of the tenant that can afford to stay in your higher rental unit.
This is the reason why I urge my new investors to jump into single-family residences before jumping into multi-families. I have proven it time and time again, that single-family homes tend to be a bit more stable in their performance and at the end of the day ladies and gentlemen, the reason we jump into real estate investing, turnkey real estate investing specifically, is because we want the stability of collecting rents every month. Unfortunately, we have to depend on a tenant that’s going to pay our rent and if our tenant is transitional and not as stable, there goes our cash flow.
That’s not to say I’m not a fan of multi-families. Once you’ve acquired a few single-family residences and you’ve stabilized them, you have a solid team on the ground and your multi-family is performing and you’ve acquired several of them to help offset the turnaround in your multi-families, then jump into multi-family if that’s a burning desire. But I’m only sharing this because I speak from personal experience and it’s just my sanity, I don’t want to worry about a tenant leaving every year, I’d rather sacrifice a couple bucks a month in my single-family residence than to have to worry about getting a property rent ready and tenanted every year.
There’s no further secret in the fact that Matt and I no longer own multi-families because they’re truly a heck of a lot more work and headache than a single-family residence, due to the caliber of the tenant that could afford that property. Anyway, that’s my banter for the day. This is one of the main reasons we focus on single-family residence because we have been able to determine time and time again that a single-family residence, although on paper doesn’t perform as great as a multi-family, we’ve been able to determine that that is not the case in real life. Just sharing.
Also, I get a lot of inquiries about how to escape the rat race and so I encourage you to go to cashflowsavvy.com, that’s savvy with two Vs, download the Frustrated Investors Guide to Passive Income. Matt and I have broken down a step by step on how to do it. This is how Matt and I did it and guys, if we did it, you can do it too. Oh, also I forgot to mention that Cash Flow Savvy just released our Top Nine Markets of Cash Flow in Middle America and if you are interested in obtaining a copy of that, it is in our investors’ package so shoot me a quick email at [email protected]. Mercedes is spelled just like the car, [email protected]. Shoot me a quick email and I will be happy to email it to you. I’ve spent a lot of time gathering data and putting information in there that’s going to help you.
There’s also The Rat Race Escape Plan in there as well, so I’d be happy to share that with you if you want a copy, send me a quick email. Give me a little bit of time to respond. Sometimes I respond right away, other times it takes me a few days to respond, but needless to say, I do respond, so feel free to reach out to me.
Ladies and gentlemen, that’s it for today. My name is Mercedes Torres, it is a pleasure sharing with you everything that I can on Turnkey Tuesdays and I will catch you next week right here. Have an epic day.
Speaker 1: Your portfolio has seen better days but this too shall pass and the best for you is yet to come. Together, we’ll get you there faster. We’re Cash Flow Savvy and we’d like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival. Go to cashflowsavvy.com. More building, less waiting, cashflowsavvy.com.