I am often asked this question by people interested in building a sound real estate investment portfolio: should they invest in single family homes or multiple unit properties? The popular idea is that one is supposed to start with single family homes and then ‘graduate’ to duplexes and perhaps fourplexes (and later, to larger apartment complexes). This is where the cash flow is, they’ve been told. I have something different to tell you. With my decades of experience in real estate, I have helped create wealth for a lot of people, so you may want to watch this to know more.
I recommend not graduating.
Think about it – which neighborhoods would you consider are the best ones? Are they the ones with apartment complexes or the ones that have individual homes with some space for kids to play? Let me put it another way: would you like to live in a place where you share a wall with a potentially noisy neighbor, or somewhere you have to share spaces with others and risk an infection in pandemic times?
I think the answer is evident: you would pick a picturesque neighborhood with a good quality of life and nice neighbors. And if this is the choice you would make, there is no reason to presume that people are looking to rent some other type of home! So for me, and all investors I advise, it is the single family home every time if you're looking to make a prudent investment. There are several excellent reasons for this, as I explain in this video.
The IRR (Internal Rate of Return) is important.
This cash flow myth is just that, a myth. The cash flow isn't necessarily better with investments in apartments, duplexes and so on -- particularly when you consider all the numbers and calculate the internal rate of return for the entire life of the investment. For you to secure your financial future and to ensure that you have access to the kind of retirement riches that you can truly depend upon later in life, there is no more prudent investment than single family homes! There is an exception if you purchase duplexes in good areas (some of our broker teams have convinced builders to build duplexes in the same quality areas as single family homes. That would make duplexes attractive enough for us to buy. Remember also that once you exceed five units in a single property (i.e. apartment complexes), the magical 30-year fixed rate loan is no longer available, and you need to get much harsher commercial loans, with onerous pre-payment penalties. Buy single family homes (or duplexes in quality areas). Not one, not two, but as many as possible! Yes, it is possible and I will tell you how – check out this video for all the answers!
