Today’s REI Classroom Lesson
Michael Blank explains that if you aren’t quite ready for investing in apartment buildings, duplexes can be a good way to ease into multi-family investing.
REI Classroom Summary
Find out the benefits of the investing in duplexes and how can make sense that they’re your next deal.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Michael: Hi there, and welcome to the REI Classroom. My name is Michael Blank and I’ll be your instructor today. Today we’re going to talk about why duplexes may be the best way to get into multifamily investing.
Mike: This show is sponsored by passiverental.com.
Michael: All right, so here’s the thing. My argument always is to do the biggest deal you possibly can, and there are exercises and things you can do to expand your comfort zone so that you’re thinking bigger than you might now. I mean bigger and better is actually multifamily is a good thing. You can get nonrecourse financing. It takes just amount of work to do a 20-unit as it does a 5-unit, a lot of benefits.
But here’s what I’m finding. Sometimes the bigness of getting a multifamily is overwhelming that someone never gets out of the gates and never gets started. So my normal attempt with a student is to expand their comfort zone and get them to as big as we can and then go for that first deal. But, sometimes if you can’t get to that before a person gives up I will go to Plan B, and this is about Plan B not Plan A. The plan is to go as big as you can.
This is Plan B. we’ve tried everything, we’ve expanded your comfort zone, and you’re still very uneasy, not very confident, and before you just bag the whole idea of multifamily as a way to retire on passive income let’s go to Plan B, which is this. And there are actually advantages over going to duplexes than larger deals.
So what I want to do here in this video is kind of outline some of those benefits. All right, are you with me so far? So there are some benefits. Number one is there are more duplexes out there than larger multifamily. I mean, obviously, if you’re looking at if you want to buy a single family house rental, I mean, they are everywhere.
Now, duplexes, there’s probably not quite as many, but there is a ton of them. I mean, you can go on LoopNet for example . . . forget LoopNet. You can go on the MLS realtor.com and search for multifamily on realtor.com. And I just picked like a small town about an hour and a half away from DC just to prove it can be done and there was like 79 multifamily which is essentially duplexes tris and quads or maybe the occasional 10-unit. There’s a lot of them, right? So there’s more of them out there.
Number two is you need less money. It makes a lot of sense. For multifamily, one of the big objection is that you need a lot of cash and that is true, which is why I teach people to raise money, and that’s fine. With smaller deals, you might actually have the $15,000, $20,000 yourself, or you have to raise a lot less of it. So raising the money is less of a concern with duplexes.
There are a lot easier to analyze in the multifamily, right? I mean, it’s basically like analyzing a single family house. It’s all comp space, right? It’s not income-based or anything like that. It’s just looking at the comps like you do with the normal house. You have a lot less expenses in a duplex. It’s like renting out a single family house. You don’t have a lot of . . . So it’s a lot easier to analyze.
Number four, you don’t need to build a huge team. Multifamily is important if you have a good team in place, a good team of property managers, brokers, lenders, attorneys, that kind of stuff. With duplexes it’s not nearly as important to have a really good team. It always helps, but it’s not really a requirement.
And reason number five is that single . . . that duplexes actually tend to cash flow better than multifamily on a per unit bases and that’s because the overheard is lower on a duplex. So those are some of the advantages. I would say the disadvantages are it’s much harder to scale and to actually achieve your goal. But again, before you bag the whole idea of multifamily, then let’s go for duplex.
So don’t let the vision stop you of retirement in three to five years via multifamily. The strategy is sound. Again, my advice is to go as big as you can, but before you bag it, consider duplex. Really consider duplex and I hope that gets you in the game. I hope that was useful. I’ll catch you in the next episode.
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