Monthly residual cash flow is probably one of the most attractive aspects of real estate investing. The checks come in every month, and you don’t have to trade your time to earn the income. This means freedom and many a successful real estate investor enjoys the freedoms in life afforded by substantial monthly income stemming from rents on their properties.
One question to ponder is how do you want to structure your business—Do you want monthly income coming in small chunks from a larger number of properties, or in big chunks from fewer large properties? Most of you probably favor the second option. I know I do. Rental income from multi-units is both more substantial and less risky.
The Best Strategy
I have heard just about every real estate investment strategy there is, and a lot of them sound like this… Find one or two single-family homes each month that each generates at least $100/month in positive cash flow. One hundred such properties will leave you with $10,000 a month in total residual income.
… Whether you learned about investment real estate through the school of hard knocks or in a weekend seminar, chances are you heard something like that before.
Sure, you can get monthly residual income from owning single-family houses, long-term. However, you really need to consider all the maintenance and management issues too—each issue is unique to each property. By the time you’ve collected all the rents, fixed the broken pipes, toilets or windows, and answered all the phone calls from tenants in need, you’d probably be questioning just how valuable that $100 per month in net income really is.
Imagine that scenario amplified 100 times! The question really is… Do you want a full-time job managing dozens of (or more) properties, or do you actually want to invest in real estate? Holding single-family homes is a much harder paycheck to earn, and it’s also a lot riskier to have all your money in single-family houses.
Think about it, what happens if you lose your tenant in your single-family house? Your monthly income from that property disappears until a new tenant moves. Yet the mortgage still needs to be paid every month. A few months of vacancy can wipe out all your annual residual income from a single-family home, tapping both your wallet and your spirit.
Achieve Your Income Goals
By comparison, if you lose a tenant in a three-family building, you only lose one third of your income. Rents from the other two units continue to cover your mortgage until you get another tenant. This is just one of many reasons that owning multi-units is smarter and safer than owning single-family homes.
Your monthly income goals for your real estate business are much easier to achieve with multi-unit buildings than they ever could be with single-families. Which seems easier—generating $10,000 per month from 100 single-family homes or $10,000 per month from one 100-unit apartment complex?
Decrease Your Risks
There are other issues to consider as well. Risk with multi-unit buildings is far lower, as the impact of a few vacancies is less than it is with single-family homes. Tenant turnaround is shorter, apartment cleanup is easier, and if you choose your investments wisely, you could already have people waiting to move in when a tenant moves out.
Maintenance issues are also easier when you work in volume. Yes, a 100-unit apartment building has 100 separate units. But the units are contained within a handful of buildings, rather than being scattered and having their own independent maintenance issues.
Increasing your income is far easier with apartments as well. A simple rental increase of $25 in a 100-unit building effectively increases your monthly income by $2,500. It would be nearly impossible that all of your 100 tenants all living in your various single-family homes would agree to pay that much more in rent, without experiencing at least some sort of rash of vacancies and lost income.
Volume is a great way to produce massive amounts of revenue and create a virtual empire. Can you see how you can create your very own real estate empire? Simply shift your investing focus from small units to larger ones. Holding single-family homes will make you money. But, controlling multi-unit buildings will make filthy stinking rich!