From Single-Family Rentals To Duplexes To 75+ Unit Commercial Real Estate: Risks & Opportunities For Each Property Size
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    I remember the first time that I considered investing in the stock market, back when I was a teenager. I had heard that stocks could be a path to high-yield growth for your money, but I had no idea about investment strategies or how it worked. I didn’t know if I should pick individual stocks or invest in an index fund and let it ride. 

    On top of that, I definitely had no idea at the time how the returns worked. I assumed that if the company I invested in did well, that my shares would go up in value, but I had no clue about the nuances in between. And taxes? Interest rates? Forget about it. 

    Ultimately, because I didn’t have enough information and couldn’t quite wrap my head around how it all worked, I ended up investing in nothing, at least until a few years later when the opportunity to invest in real estate presented itself.

    When it came to real estate, I didn’t have to spend nearly as much time scratching my head, puzzled about how it worked. That’s because I had had years of experience living in rentals myself, and I understood that I was paying rent each month to the owner of the property, who in turn paid for the mortgage and any expenses.

    Because I had firsthand experience with living in an apartment myself, it was a much smoother on-ramp to real estate investing. Sure, when I first started, I may not have understood the complexities of commercial real estate, but I had a basic understanding of living in apartments and paying rent, which I could then build on to eventually apply my understanding to commercial properties.

    If you’re nodding your head because you have a similar experience, you’re in good company. Many people find real estate investing much more relatable and easier to understand than the complexities of the stock market.

    However, that being said, when it comes to investing in real estate, what are the benefits of investing in single-family homes versus multifamily homes versus 75-unit apartment communities and beyond? Should you aim to build a portfolio of single-family homes, try to scale up to commercial properties as quickly as possible, or build a diversified portfolio encompassing both?

    Now that I’ve been investing in real estate for over 15 years, I’ve invested in everything from small residential properties to large commercial real estate assets, and I can tell you that there are pros and cons, as well as risks and rewards, of each.

    To help you best assess which might be right for you, let’s walk through the various sizes, starting from single-family and multifamily rentals through large-scale commercial real estate apartment complexes, and pinpoint the opportunities so you can find the best investments for you and your return on investment.

    Key Property Investment Takeaways

    • When you’re investing in real estate, there are opportunities to make money regardless of the size of the property you’re investing in. The key is in understanding your own investing goals, as well as your appetite for risk taking.

    • Residential real estate refers to properties with 1 to 4 units. Once you get to 5 units and up, that’s considered commercial real estate, and you will need to get commercial financing.

    • As you scale up from single-family to multifamily, you get to take advantage of economies of scale, which can bolster your overall return on investment and minimize headaches.

    • When deciding on what property size to invest in, it’s important to take your own level of involvement into account. If you have no desire to manage the asset yourself, a real estate syndication might be the best path for you.

    • There are unique opportunities within the world of commercial real estate, particularly when looking at assets that have less competition, like multifamily assets around 75 units.

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    Starting Small: Single-Family Rental Investments

    Single-family homes are a classic entry point for many real estate investors. Most people have lived in a single-family home, so there’s little guesswork when it comes to how it works. Plus, if you’re a newer investor, a single-family rental can often seem less intimidating than, let’s say, a 10-unit commercial real estate property where you’re managing multiple residents.

    On top of that, if you’re moving out of a single-family home you’re currently living in but don’t need to sell it, you could easily hang onto it and rent it out, turning you into an instant landlord and real estate investor.

    That being said, while many real estate investors start with single-family homes, you should know that this is not a prerequisite. Some commercial real estate investors choose to start big, with commercial real estate investments right off the bat, skipping residential properties altogether. And that can totally work too.

    Personally, I started with house hacking duplexes (more on that in a bit), so I never technically invested in single-family homes either. It all comes down to your personal preference, risk tolerance, and investing goals.

    Here are some things you should consider if you’re thinking of investing in a single family rental.

    Risks

    • High Vacancy Risk: A single-family rental is reliant on a single tenant, which puts it at risk if that tenant moves out and another tenant doesn’t immediately move in. These vacancy periods can significantly impact cash flow and your financial security.

    • More Management Intensive: A single-family rental often requires more hands-on management for maintenance and tenant relations. Working with a property manager can help alleviate this, but you’ll still need to make owner-level asset management decisions, like when to raise rents and whether to evict a particular tenant.

    • Market Dependent: The value of your property depends on that of comparable properties in the area (unlike with a commercial property, which is valued based on the income it generates). What this means is that, if values in the market as a whole slip, chances are that your value will slip too, even if it’s the best property on the block.

    Opportunities

    • Lower Entry Cost: A single-family home, particularly in a smaller or emerging market, typically requires less capital investment for acquisition compared to a larger commercial property in more established and competitive markets.

    • Straightforward Management: When dealing with a single tenant, it can be easier to manage yourself or hire a local property manager.

    • Potentially Higher Appreciation: Single-family homes can sometimes appreciate quickly, especially if you invest in the right neighborhood in the right market at the right time. Like all investing, property investment involves gathering information and strategies to plan the timing your investments for an optimal return on investment. 

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    Scaling Up: Investing In 2-4 Unit Residential Multifamily

    When you start to look beyond a single-family rental investment, that’s when the real fun starts. When you branch out to duplexes, triplexes, and fourplexes, you get more bang for your buck, as you’re buying a single property but get to collect rent from multiple tenants. It’s like real-life Monopoly!

    Because you have multiple units under a single roof, you get economies of scale – shared expenses, utilities, etc. – which can contribute to the bottom line and your overall return on your investment and bolster your financial security and mitigate investment risk.

    Note: As long as the property you’re investing in is four units or less, it’s considered a residential property (rather than a commercial property). This means that you can qualify for a residential loan, which is often much simpler than the commercial loan process.

    This is how I got my start in real estate investing, through house hacking duplexes. When you’re house hacking a duplex, that means that you buy the property, live in one unit, and rent out the other. Depending on the economics, the rental income from the other unit could drastically lower, or completely cover, your mortgage and other expenses, making house hacking a great way to build wealth.

    I actually house hacked 4 duplexes before then scaling up to fourplexes out-of-state, and eventually large-scale commercial real estate assets via real estate syndications (more on that in a bit).

    Here are some important considerations to keep in mind when investing in small residential multifamily properties:

    Risks

    • Moderate Vacancy Risk: With a small multifamily property, you are still reliant on a few tenants, so vacancies can affect cash flow.

    • Management Complexity: Managing multiple units can add complexity compared to single-family rentals. You’re not just dealing with more tenants, but you’re also potentially dealing with the relationships and dynamics between tenants (e.g., one tenant has a dog that barks a lot).

    • Financing Challenges: Obtaining financing for smaller multi-unit properties can be trickier than single-family, though as long as you stick to four units or fewer, you can still qualify for a residential loan.

    Opportunities

    • Higher Potential Rents: Potential to collect rent from multiple units on a single property. Putting more money in your savings account that could be used for future property investments.

    • Economies Of Scale: Sharing some expenses (e.g., utilities) across multiple units can improve efficiency.

    • House Hacking Potential: One unit can potentially be owner-occupied to offset living costs.

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    Movin’ On Up: 5-75 Unit Commercial Real Estate Apartment Buildings

    At this stage, you’re looking to scale up beyond small multifamily (4 units or fewer) and invest in commercial real estate, which comes with its own set of investment benefits and challenges.

    One of the biggest draws of commercial real estate investing is that you can tap into economies of scale. Through one single purchase or transaction, you can gain dozens of residents, all paying you individual rent checks each month, and all under potentially a single roof. 

    Compare this to building a portfolio of single-family rentals, in which you’re having to find and do due diligence on each individual property, go through the loan process for each property, and close on each transaction individually, not to mention the 10-loan limit that many lenders will restrict you to.

    This is a big part of what can make multifamily commercial real estate so attractive for investors, because if you know that this type of investing is working for you, you likely want to put more of your money into it and scale up as quickly as possible.

    When it comes to properties that are 5 to 75 units, this can be a sweet spot for many property investors, particularly since there tends to be less competition in this space. This is because these properties are often too small for larger institutional groups, so the only people bidding on these properties are individual investors or real estate syndicators.

    That being said, one of the challenges of working with commercial real estate assets within this size range is finding a great property manager and making the numbers make sense. Because properties of this size aren’t large enough to afford having their own full-time staff and maintenance crew, the property will likely need to share property management staff with other properties. 

    Keep in mind that you can either invest in commercial real estate investing with assets of this size range, which you can do on your own (and take on the asset management yourself) or as a passive investor in a multifamily syndication (group investment).

    Here are some additional things to consider when investing in properties within the 5-75 unit range, either on your own or as part of a syndication:

    Risks

    • Property Management: Larger buildings often require professionals for property management, so you’ll need to factor in this expense to your investment strategy. 

    • Asset Management: While the property manager will execute on what’s needed at the property, asset management will be needed to direct the business plan. 

    • Market Dependent: Vacancy rates in a larger building can have a bigger financial impact. If the market is declining and more residents are moving out, this could lead to a deficit in being able to cover the property expenses.

    • Financing Complexity: Securing commercial financing typically involves stricter lending requirements.

    Opportunities

    • Stronger Cash Flow Potential: Multiple tenants translate to potentially higher and more stable income.

    • Economies Of Scale Amplified: Bigger buildings benefit more from shared amenities, utilities, and potentially lower maintenance costs per unit.

    • Professional Perks: Property management becomes crucial for smooth operations, allowing you to focus on the bigger picture.

    • Valuation Independent Of The Market: Once you get into the commercial real estate realm, the value of the property is based on the income the asset can generate, rather than local comps. This can give you a lot more control over the investment.

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    The Big Leagues: 75-150+ Unit Commercial Real Estate Apartment Communities

    Once you get to 75-150 units and above, you’re typically talking about a different level of real estate investing, very different from single-family homes. Most commercial real estate investors who invest in properties of this size do so through real estate syndications, which allow you to invest passively in commercial real estate without the headaches of being a landlord, and easily diversify across multiple properties, business plans, and markets.

    Why is 75 the magic number? Because at 75 units, that’s typically the threshold for being able to support a full-time on-site property manager, and potentially maintenance staff as well. This can make a huge difference, as it not only means that you have someone who’s focused on the asset full-time, but also that you’re typically working with a higher caliber property management group.

    That being said, commercial properties of this size tend to draw more competition, particularly from larger funds and institutional groups, most of whom are looking at commercial real estate assets around 200 units and up.

    The sweet spot here are the properties around 75-150 units, as the competition can be lower, while the economies of scale can still be a big benefit.

    Personally, I love investing in commercial real estate assets around 75 units. If you’ve ever visited one, you’ll know that a property of that size still very much feels like a community, where you know many of your neighbors and are often greeted by familiar faces.

    Once you get to 150 or 200 units, you get access to more economies of scale, but you tend to lose some of that community feel, given that there tend to be dozens of separate buildings within a larger community, making it truly feel like a commercial property.

    Risks

    • Serious Capital Investment: Commercial real estate assets of this size range require a substantial amount of money to buy and manage. This is why most people invest in properties of this size via commercial real estate syndications, so multiple investors can pool their money together.

    • Complex Operations: Managing these larger assets requires specialized expertise and potentially a larger staff. However, the benefit is that, once you hit 75 units or so, the property itself should be able to support full-time on-site staff.

    • Market Sensitivity: Large buildings can be more vulnerable to economic downturns and market shifts, which is why it’s important to do your due diligence on the market and plan out a robust strategy.

    Opportunities

    • Strong Income Potential: Large commercial real estate buildings can generate rental income at a substantial rate, which is part of what makes commercial real estate investing so appealing.

    • Economies Of Scale: You can expect significant cost savings per unit due to the sheer scale of the property, including the shared amenities, utilities, and staff.

    • High Caliber Management: Professional management is essential for maximizing return on investment and minimizing headaches for commercial real estate properties of this size. That being said, one of the benefits at this size range is that you typically have access to the highest caliber management teams and professionals.

    • Valuation Independent Of The Market: Just as with any commercial real estate properties 5 units and up, the value of the property is based on the income the asset can generate, rather than local comps. At 75 units and above, even if you were to increase the income per unit by $10 per unit per month, that’s substantial additional income for your savings account over the course of the year across all units.

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    Choosing Your Real Estate Investment Size

    Now that we’ve walked through the various size options, from single-family rentals to 75+ unit commercial real estate multifamily assets, the question is – what’s the best fit investment opportunity for you? Should you invest in commercial real estate, or focus on smaller properties?

    The answer, as with most questions worth asking, is that it depends. And, also that there’s no single right answer. The best property size for you depends on your goals and risk tolerance, as well as how much time and effort you want to put into the investment.

    In addition, if diversification is important to you, you might consider investing in a combination of smaller residential properties, which you manage on your own or in partnership with a property manager, together with some larger commercial real estate properties via syndications.

    • Single-Family Rentals: Best if you’re either first starting out, just want to dip your toe in, and are okay managing the asset yourself (or with a property manager). Keep in mind that, with a single tenant, if they move out and you’re not able to get another tenant in there right away, you may need to cover the expenses for a period of time.

    • Small Residential Multifamily (2-4 Units): Great investment opportunity for house hacking, gaining economies of scale, and ramping up your asset management chops. This can be a great avenue to scale your real estate investment portfolio faster than single-family rentals.

    • Small To Mid Sized Multifamily Commercial Real Estate (5-75 Units): Less competition than bigger multifamily properties, great economies of scale, valuation independent of local comps, and opportunity to foster a sense of community. Just keep in mind that you’ll need a commercial loan.

    • Mid To Large Sized Multifamily Commercial Real Estate (75-150+ Units): You’ll likely see greater competition at this size range, but you get access to the highest caliber professionals in property management, and the property should be able to support full-time on-site staff.

    The choice between property sizes depends on your risk tolerance, investment goals, and available capital. Smaller properties offer easier management and potentially higher appreciation, while larger properties typically offer stronger cash flow and economies of scale, but come with increased complexity and risk.

    Diversifying your portfolio across different property sizes, as well as across both residential and commercial real estate, can be a strong strategy to balance risk and reward.

    Passive Vs. Active Real Estate Investing

    On top of the size of the asset you want to invest in, it’s also important to consider the amount of time, effort, and ongoing work you want to devote to the investment.

    If you’re investing in a small residential property on your own, you should be prepared to be involved in asset management decisions on an ongoing basis, even if you choose to work with a property manager. You’ll need to direct your property manager as to how you want to run your property, including deciding on when to raise rents, which elements of the property to improve, when to evict, and more.

    If, on the other hand, you don’t want to be involved in the day-to-day asset management decisions and just want someone else to oversee all of that for you, then passive real estate investing via a syndication is probably the better fit for you.

    With a real estate syndication, you get to invest your money into a commercial real estate investment and reap all the benefits of owning real estate (including tax benefits) – all while sitting back and letting someone else do the heavy lifting.

    The only thing that you can’t do with a real estate syndication? Invest in a single-family home. Typically, because of the structure and expenses that come with putting a syndication together, it doesn’t make sense to invest in small residential real estate, unless it’s a portfolio of dozens or hundreds of smaller properties.

    So, if you decide that passive real estate investing is the path for you, you’re likely looking at commercial real estate investing, not residential.

    Competition & Opportunity In Commercial Real Estate Investments

    When it comes to commercial real estate investing, there are often more players in the game, and that’s something you should take into account as well. As savvy investors know, it’s not always wise to jump on the bandwagon and go where everyone else is going. Reinforcing that gathering information and formulating a strategy that suits your investment goals is paramount. 

    Rather, the opportunity often lies in going in the opposite direction, away from where the masses are headed. And in the realm of commercial real estate, and particularly multifamily, this opportunity can sometimes be found in the properties that fly under the radar.

    For example, a commercial real estate property around the 75-unit range will likely see less competition than one around the 200-unit range, because larger institutional groups aren’t usually interested in these smaller assets.

    This can make properties of this size a great opportunity for real estate syndication groups, as they are of a decent size, can support on-site staff, and take advantage of economies of scale.

    When looking for your own commercial real estate investments, it’s important to take hidden gem opportunities like this into account.

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    Next Investing Steps

    Whether you’re considering investing in a single-family rental, multifamily rental, or a commercial property, there are many things to take into account when deciding where and what to invest in. Before you get overwhelmed, we recommend you start with your own investing goals. Getting clear on those will help guide you in determining which investments are right for you. 

    As part of the process, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on insights, as well as opportunities to invest alongside us in real estate syndications, if that’s the right fit for you.

    You can also check out our open deals page to learn more about our current or upcoming opportunities.

    Learn More

    If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101

    You can also get a copy of our book – Investing For Good – or check out our Life & Money Show Podcast.

    To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.

    Connect With Us

    If there’s ever anything we can do to help you on your journey, feel free to email us at [email protected] or call / text us at (888) 830-1450

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    Annie Dickerson

    Annie Dickerson

    Annie Dickerson is an award-winning real estate investing expert with 15+ years of real estate investing experience. Annie is the Founder & Chief Brand Officer of Goodegg Investments – an award-winning boutique real estate investment firm.

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