SFR vs. Apartment – Which Is Better Investment?

It was an easy decision if you asked the same question more than five years ago. It’s an Apartment. Having a 30-unit apartment is much easier to manage than 30 different SFR.

The apartment has an edge in terms of hiring a good property management company. First, the fee is cheaper, typically 4-6% compared to 8-10% for SFR.

However, things have changed quite a bit in recent years for four reasons.

1. Millennials do not like owning their home.
2. Co-living
3. Self-Directed IRA
4. Technology

Millennials And Home Ownership

Millennials do not like to own a house. They saw their parents suffer from trying to pay the mortgage and other things related to mortgages. They want to live a simple and comfortable life. They care for themselves rather than sacrifice for family or for the future. That does not mean they don’t prepare for the future. They are very data dependent and smart. They share various ideas, data, and experience on social media.

Co-Living

Another thing millennial in major cities like Los Angeles, New York, and San Francisco do is to live in a co-living space. There are many buildings that are professionally managed to host co-living space. The main benefit of co-living is, of course, the cost. It offers many convenience and amenities. Most co-living space has a gym, a laundry room, a kitchen, and a living room. Common areas are cleaned and managed by the management company which leaves the tenant with only cleaning their room and bathroom. Few places offer cleaning inside your bedroom and bathroom as well as laundry service. It provides the convenience of living in a hotel at a fraction of the cost and benefit of calling it home. This model is popular among the busy young millennials who want to live close to work.

Another model provides more economic benefit than convenience. Millennials often rent a house and split the payment, effectively creating a co-living condition. This way they can live in a safer neighborhood at a lower cost.

Self-Directed IRA  

While millennials do not purchase a house to live in, they often invest in buying an investment property. Real estate investing is no longer a secret as there are so many late-night infomercials and fix and flip TV programs. Again, millennials gather information from social media to find the most efficient way of investing in real estate. One of the popular strategies is to use self-directed IRA to invest in real estate in the Midwest. There is much information out there on various tactics available to take advantage of investing in real estate using self-direct IRA. You can learn more about it here.

https://www.questtrustcompany.com/investment/real-estate-in-your-self-directed-ira/

Technology

It was difficult to find or expensive to use software for property management as a homeowner. These programs were only available for property management companies. Recent years, there is more and more software, and apps readily created for homeowners who are managing their own property. Some are free, and some are paid for a reasonable price. These apps offer all the bells and whistles one can possibly imagine. Feature it offers are:

• Listing for rental
• Online rent application
• The ability for tenants to submit their credit approval directly to TransUnion
• TransUnion will notify you of the score and potential concern.
• The tenant can pay the rent online utilizing ACH for free or pay with a credit card with a fee.
• The payments get reported to TransUnion automatically. It helps to improve credit score for the tenant if they pay on time. If delinquent or non-payment, it can negatively affect the credit score. It also builds a database that is available for the landlord to see if the tenant had a clean track record of paying the rent in previous rental places.
• It keeps a tenant payment history for them to use the data for tax and other apps.
• The tenant can request repair via online. It saves you the time of having a long conversation with the tenant. You just have to pass on the message to a contractor. It also keeps all the maintenance records and money you spent on repair for easy reporting for tax and other apps.
• Easy tax reporting.

 
Technology also helps you find a good contractor by checking out several referral sites such as Thumbtack and Home Advisors.

Another main reason I like SFR is that vacancy rate. Tenants who rent SFR lives at the property on average 36 months compared to 18 months for the apartment.

Institution Investing

There was limited investing in SFR by a prominent Wall St institution, but lately, the game has changed. Number one player in SFR renting business is Black Stone Group, the largest private equity and hedge fund management firm, and Warren Buffet.

https://www.bloomberg.com/news/articles/2018-02-16/wall-street-s-home-rental-bets-shift-to-lower-end-u-s-houses

https://www.cnbc.com/id/46538421

Following smart money is one of the better well know strategy in the stock market. It may be the same in the real estate market as well. My guideline is 50 units or over is Apartment, and 30 units and under are SFRs especially you are inexperienced in apartment game. I will say 30-50 units is a wobbler. What I mean is that if you own more than 50 SFRs, maybe it is a time to consolidate your houses and move on to the apartment. This is strictly for buy & hold cash flow strategy and not for wholesaling or flipping.