Epic Real Estate Investing - Should My Investment Be an SFR or A Multifamily? | 1110

Episode Date: December 29, 2020

In today’s episode, we are discussing which one is a better investment option, a SINGLE-FAMILY RESIDENCE or a MULTI-FAMILY PROPERTY! More specifically, Mercedes, The Turnkey Girl, shares her REI experience and reveals which option she prefers and why! Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio 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 it 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. 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 Terrio, 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 knew to Turnkey Tuesdays, you know, I created this show to cater to busy professionals who understand the importance of real estate, but they used.

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 like a ability to dip your toll in the water and to share what it is to get involved in real estate investing. And hopefully you'd consider using a turn-key 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. So today, I'm going to talk about one of the most famous questions that I get on a regular basis. And it has to do with, you know, why I've chosen to invest in single

family residents as opposed to multi-family, and why don't I heavily promote multifamily with cash flow savvy and just in our podcast? So the answer is absolutely easy for me to answer because, I mean, I've been doing real estate investing since 2002, 2003. I've done well over 2,000 transactions in total. And of those 2000, 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 have been through, you know, maybe a seller or a buyer or a transaction that, 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. And, you know, 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 done. I've done money. 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 multi-family properties. They're a whole different animal than 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. And 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. So when Matt and I started investing heavily into real estate, it was right during the turn of the market. So we started. We started investing in 2002. We jumped into personal investing right around 2006. And Matt was a real estate agent. I was in the banking part of it, so the financial aspect of it. And 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. So 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 medium household size and medium 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. And as you know, history tends to repeat itself. So 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. So 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, ten months down the line. But we have an idea. So all that said is, you know, 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.

So 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 multifamily families that can be conventionally financed. So anything between two and four units. And I'm only going to talk about this two and four units. because it's a little bit more tangible for the average investor starting off. So 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? And what we learned personally and with cash flow savvy is the price point of the rent dictates the caliber of your tenant. Okay, I'm going to say that again. The price point of your rent dictates the caliber of your tenant.

And when I mean price point, I just mean rent and the purchase price of the property. Okay. So 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. And that generally is a person who has a family, and it has to put a roof over the head for somebody else.

Okay? So I'm using this as an example because, again, I'm speaking from personal experience. So 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. Okay. So 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, you know, 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 it's even a death. So 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

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 their 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. So 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 a 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.

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 a multi-family. Now, let's break down the numbers, specifically talking about a 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 that's $90,000.

Okay? So two units, $90,000 in Middle America and 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. Now, 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 at nauseam on other podcasts. Today, I'm just talking about the big picture. I want you to really understand the general big picture that I want you to consider when you're

thinking about jumping into a multifamily and why sometimes it's best to consider a single family residents. Now, 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 it. In a multifamily, every time your tenant moves, you need to give up 60 days. Remember, we talked about it. It takes average 60 days to get the property rent ready and retent it. So you need to give up two months of rent every time your tenant leaves. And if your tenant is leaving every year in two months in a multifamily, you're having turnaround every single year. and that's kind of 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 multifamily 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 could afford to stay in your higher rental unit. And 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, turn to 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. Now, that's not to say I'm not a fan of multi-families. Once you've acquired a few single-family residents and you've stabilized them, you have a solid team on the ground and your multifamily is performing and you've acquired several of them to help offset the turnaround in your multifamily. then jump into multifamily 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. Now, there's no secret. 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 residents 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 cashflow savvy.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. 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. Does your money work for you as hard as you do for it? If not, no worries. You do not have a money problem. You merely have an idea problem. We're cashflow savvy.com. And we'd like to share a new idea with you around income real estate that can transform

your financial future and accelerate its arrival. Go to cashflowsavvy.com and download a free investors package. Cashflowsavvy.com. You do not have a money problem. Merely an idea problem. Cashflow savvy.com. More ideas, less worries. Cashflow savvy.com.

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