1) Cash Flow

Many a times, the individuals learn about real estate investing through single-family residences. However, investing in single-family residences have a number of challenges including cash flows reliant on single occupant, no economies of scale in management, headaches on managing tenants and many more. Many smart investors graduate from single-family to multi-family real estate investing as the logical transition. Briefly, we explain several advantages of multi-family over single-family for you to consider graduating into commercial real estate investing.

2) Capital Expenses

Unforeseen capital expenses can wipe out years of cash flow and may result in negative returns in single-family. In a multi-family real estate project, there is extensive due diligence and planning with professional expense management.

3) Property Management

Some single-family real estate investors manage their own properties which requires extensive time investment. Others hire a property management company to handle the day-to-day operations, paying them a percentage of the monthly income. The duties might include finding and screening tenants, collecting rent payments, handling evictions, and maintaining the property. The percentage paid on single-family property management is significantly higher than the percentage paid to manage a multi-family property with hundreds of apartments.

4) Construction Management

Renovations and construction can improve the property but requires proper analysis to ensure that the additional investment actually improves the rent value as well. Good asset managers hire professional construction management and have deep experience in market knowledge and analysis to ensure that the renovation budget brings value to the investors.

Overall, the lack of economies of scale, inability to handle unforeseen circumstances, volatility in cash flows and excessive time requirement are some of the disadvantages experienced by single-family investors. Passive investment in commercial real estate addresses all of these disadvantages. As a result, Commercial real estate is an increasingly popular alternative asset class for diversification.