E 121- Single Family VS Multifamily Part 1: Getting Started & Direct Ownership – Steven Pesavento
E121 – Single Family VS Multifamily Part 1: Getting Started & Direct Ownership – Steven Pesavento
In this episode we define the terminology of “single family” and “multifamily” investing and explore which one is best for you and your unique situation. Jump into this episode with me and let’s learn what the cost of direct ownership is and… how you can get started!
Learn more about investing with Steven at https://theinvestormindset.com/invest
- Single family is great when you want more control
- You can get started much faster with single family investments
- If you lack experience then investing in multifamily can be safer
Read the Transcript Here
Title: E121: Single Family VS Multifamily Part 1: Getting Started & Direct Ownership
Presenter: Steven Pesavento
[00:00:01] Steven: I’ve got some really exciting news, our operating partners on the commercial multi-family space have agreed to invite new investors in as some of our future deals. We are proud to bring these institutional style opportunities to investors within our community. In order to have access to these investments, you have to sign up at the investormindset.com/invest. And we have thousands of people who listen to the podcast, and we typically only allow 50 people to invest in each deal. So make sure you head over there right now because once we send out the email announcing our next deal, it’ll likely be sold out and oversubscribed. So get started at theinvestormindset.com/invest. And I look forward to seeing you on the inside.
[000:00:46] Narrator: This is The Investor Mindset Podcast. And I’m Steven Pesavento. For as long as I can remember, I’ve been obsessed with understanding how we can think better, how we can be better and how we can do better and each episode we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
[000:01:08] Steven: Welcome back to this week’s mindset minutes episode on The Investor Mindset podcasts. And I’m Steven Pesavento. And each week we share mindset tips and strategies that can help you grow your investing business. And this week, we’re jumping into a four part series comparing the difference between investing in single family versus multi-family and looking to answer the question, which one’s best for you. And join us each week as we share more tips and strategies to help compound your growth and really allow you to hit true financial freedom through real estate by hitting that subscribe button. And if you love what we’re doing, we’d appreciate a review on your favorite podcasting app.
So as we dive in here, we’re going to set the stage of some definitions. When we talk about single family, we’re talking specifically about single family homes or multi-family properties that are under five units. So we typically will bunch all of these together under the residential side of real estate, so we’re going to be calling that single family homes. And anything that is over 100 units or more, we’re going to be calling multi-family. Of course, we’re leaving out all the multi-family properties from five units to 100. But we’re doing that on purpose with purpose to make a clear distinctive comparison between investing in residential real estate versus investing in commercial.
You guys know that I’ve been investing in single family homes for, you know, over three years and over 200 deals, I’ve held on to a number of rental properties and flipped quite a few houses. And I’ve made a hard decision and switch to moving towards commercial real estate. And what I’m going to be walking through here today is the specific facts of what the difference is between the two and I’ll share a little bit of my opinion, but at the end of the day, each of these is going to have its own benefits that are going to fit for you. So I’m going to lay those out and you guys can make your own decisions as we’re going to be talking specifically today, about getting started and the direct cost of direct ownership. So there’s some clear benefits for single family and multi-family. And we’re going to be getting into those here. So when we look at getting started with single family, one of the big benefits is that it’s a much quicker process to getting started and really getting your investing career going.
One of the reasons is because it requires a lot less experience to be able to succeed as a single family home owner and you’re going to be buying a rental property, let’s say you’ve most likely lived in a single family home or at least an apartment and you have a good idea of what some of the mechanicals and moving parts that are in that property. So you come to the table with a little bit more experience than you do moving into a much larger commercial building, or residential commercial building like we’re going to talk about.
So one of those benefits is that you already have a lot of the experience necessary to get started in single family, there are a lot of things that you can learn and you must learn to really be an expert. But it’s much, much lower barrier to entry. And the direct cost of ownership is much lower; there are some big benefits there. For those people who absolutely must be in control of every part of their investment, from start to finish, direct cost of ownership, is something you really have to consider because being a direct owner means that you’re responsible for making all the decisions that happens, you’re going to be responsible for putting property management in place, you’re going to be responsible for signing on the loan, you’re going to be responsible for making the decision on what’s the right investment and when you should buy, sell, renovate, or anything that has to go into that property. And with single family, it’s a much lower cost to getting started with direct ownership. And for people who need to be in control, this is an absolute must. I strongly encourage people to go down the path of direct ownership, if you are somebody who absolutely have to be in control. If you’re the kind of person who doesn’t see a lot of value or benefit of having you know, an expert or somebody else manage the property and you have some trust issues or concerns about having somebody else managing your investment, then going the direct ownership route is probably what’s best for you. But when we look at multifamily one of the benefits of multifamily is that we’re looking at a much larger asset.
But the downside with that, of course, is that from a getting started perspective, to really succeed and do really well, when you’re talking about 100 unit multifamily or larger, these commercial buildings require some serious expertise. They require a track record of experience. And so it’s absolutely critical that when you’re investing in commercial real estate that you’re investing with operators that have a long track record of experience. So even for myself as I’ve moved into this space, and I’m actively investing and participating in deals, I myself have tied myself to other operators that are absolute experts. I know that you know, even with my real estate track load of experience, which is more than most people’s, I wouldn’t want to step into the commercial arena and be going up against all these sharks without the right kind of protection and experience in place, and the right team around me to make sure that we’re making those decisions. Because when you’re talking about a decision that’s going to affect 100 units, or a 10, or 15, or $20 million property, the implications of making the wrong decision can be much more dramatic than if you are making those decisions on a 100 or $200,000 property.
So the downside to investing in multifamily or commercial real estate is that it really requires a level of experience and expertise. So that means if you’re just getting started, it’s going to be much, much more difficult for you to be in a position of control. So you’re not going to have that opportunity to have direct ownership unless you have a really big you know, checkbook to be able to write a really big check to be able to come in as a direct owner and maybe partner with an operator. So when we look at these two things, direct ownership and the ease of getting started. Single Family definitely wins here it. If you’re somebody who has to be in control, then going down this path of buying a couple rental properties on your own that that’s a huge advantage.
However, one of the big advantages of going down the path of investing with an operating group in multifamily is that you’re going to be tying yourself to somebody with 5, 10 years or more track record of experience, right? You’re going to be working with somebody who absolutely knows every little piece of how that puzzle fits together. And they’re going to be focusing all of their time and attention, pulling all the levers to make sure that that investment operates at the top tier that it can. And one of the benefits to on the multifamily front, when you’re investing for a passive perspective, when you’re investing in that type of position, right, you’re able to get into a deal maybe for 25,000 maybe 50,000 maybe 100,000. And your risk is limited specifically only to the amount that you’re investing because you’re in a limited partner type of role.
So the benefit there is that if you don’t require or don’t want all the responsibility that goes along with being in control of every single decision, every paper work, every signature, and signing on the loans and all of the liability that goes along with it. And if you’re comfortable building enough trust, in an operator with some experience, you can truly be passive, and hands off on that investment, meaning that when you invest that 50,000 or 100,000, in one of these deals, that what actually ends up coming back to you is directly just the return. There is no you know, tenants toilets, or late night phone calls. There’s no worrying about a tenant trashing one of your units. I just went through that on a property that I’m selling in North Carolina, where a tenant trashed the property right before they moved out and I just spent $7,000 fixing the property that I’d spent the year before getting it ready for them in the first place.
So you don’t have to be the one making these decisions or dealing with the implications. Because the operator is the one who’s in that position, sure everything will funnel down its way to you, but somebody else is making those calls. So at the end of the day, it comes down to kind of a personality fit on whether or not you’re somebody who can truly be passive in a deal, if you’re somebody who’s comfortable investing in experienced operators that can make these decisions for you. Or if you’re somebody who has to be in control of everything, that’s what it’s going to come down to. So if we weigh the two, single family as best if you need to be in control and you have the time and the ability to go out and try to build that expertise in the space, and multi-family is specifically commercial multi-family is best if you’re looking for a passive option, a passive opportunity. And of course, you can come in from an operator perspective, but like I’m doing and like many others have, you’re going to have to tie yourself to an experienced operator to succeed. And you’re going to have to work really, really hard to bring a lot of value to those people, you’re going to have to have some kind of track record to be able to do that coming in. So when we look at it, these are the things that you want to consider.
And so I asked you, which one do you think is the best for you? And we’re going to continue this discussion, shoot me a message @StevenPesavento on Instagram. Would love to hear from you in the DMs or you can find me on LinkedIn as well. And if you guys are looking for more great content like this, we have a full resource library and continuing series at theinvestormindset.com/multifamily where we’ve got this full series articles and many others with some great free training that you can get access to anytime. So head right over to the investormindset.com/ multifamily. I look forward to seeing you there and within our free Facebook group online.
So the thing that I’ll leave you with that here is the investor mindset pieces, getting clear on whether or not you need to be directly in control and get clear on how much time, effort and energy you have to put into becoming an expert at actually running the individual properties. If you’re the person who needs to be in control, go single family. If you’re the person who doesn’t need to be in control and wants more of a passive option, multifamily could be a great thing for you to consider.
As we mentioned at the top of the episode, our operating partners in the commercial multifamily space have agreed to invite new investors into some of our future deals. And in order to have access to these investments, remember, you first have to register over at the investormindset.com/invest. This will get you access to lots and lots of great training that’s going to help you better understand what makes up a great investment in the multifamily space. But most importantly, when we have one of these new opportunities available, you’ll be the first to know and you’ll be in line to make a decision, to be able to jump in because most likely these will be oversubscribed and sold out very, very quickly. So to get started, head over to the investormindset.com/invest, and I look forward to seeing you on the inside.
[00.12.23] Narrator: Thank you for listening to The Investor Mindset podcast if you like what you heard, make sure to rate, review, subscribe and share with a friend. Head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.