“Ask yourself, ‘How long am I going to work to make my dreams come true?’ I suggest you answer, ‘As long as it takes.” — Jim Rohn
If you’re doing single family or small multifamily and expecting it to grow your wealth, you’re going to have a problem.
Today, I’m gonna tell you why that is.
I had four single family houses and they didn’t get me the cash flow I wanted.
Most people in single family investing do not become financially free unless they take 10 and 20 years to get there.
That’s too long to wait if you want financial freedom.
If you’re open to it, I have a different way for you.
Let’s jump into it!
1. The Problem with Single Family/Small Multifamily
The problem with small multifamily (under 20 units) and single family is that often there’s very little or negative cash flow.
Let’s demonstrate with an example:
You buy a place.
Currently, it’s hard to find where the numbers pencil.
When it comes to the costs in the property – management, tenant issues, repairs – they eat into the profits.
Because of this, you’re really trying to have value appreciation.
These smaller deals probably will grow in value, but it’s a very long play.
People typically don’t become financially free because they have lots of appreciation.
People become financially free because they have cash flow.
If my basic living expenses are $7,000 a month and I can get there in cash flow, then I am free.
I can leave my job.
That’s exactly what I did!
I was able to replace my living expenses with cash flow.
Appreciation is great, but it’s a potential thing for the future that doesn’t allow you to actually take advantage of having cash flow.
In order to use appreciation, you have to sell your asset and eat into your equity.
If you can have cash flow, it’s much better.
Another thing I say to people who own single family is this:
If you can’t 10x your investment strategy, then it’s not a scalable investing strategy.
If you had 4 units, could you 10x that number?
Could you go to 40 units?
That could seem insane to you.
I had trouble managing four houses!
You may feel the same way.
Even though I wasn’t the one managing these, I was getting regular calls from the property manager.
It was a lot of work.
In reality, if it’s not scalable, it’s not really passive.
It’s not something you can grow.
Another facet to consider is that you’re undervaluing your time.
If you own a business, there’s no way you should be doing all these things yourself.
What is the goal with that?
Is the goal to enjoy yourself?
To become financially free?
Most of the time, you undervalue yourself.
You don’t see all the time you’re putting into your business.
When you look at your normal hourly rates, you’re probably losing money
That’s a big challenge.
The last thing I’ll say about it is that it’s really hard to find good property management for single family houses.
You pay more.
Typically, you pay 8% to 10% of the gross rents per month.
That’s a lot of money.
For small multifamily, until you get to about 60 units, you don’t really have an efficient operation.
That’s typically because when you hit that mark, it makes sense to have a full-time property manager.
If you only have 10 or 20 units, a property manager is typically managing four or five different buildings versus managing one larger property with 50-100 units.
2. The Better Way
There is a better way to grow your wealth.
You can grow both with cash flow and appreciation without taking up more of your time.
It actually allows you to scale.
The better way is large multifamily buildings.
I wish I had started earlier.
There’s a saying that says when a student is ready, the teacher appears.
I would encourage you and everybody I know in multifamily to go as big as you can as quickly as you can.
This can be as an active investor or a passive investor.
How and why would you do this?
I’m glad you asked!
The why is that large multifamily is truly scalable.
You can grow your wealth much faster.
I was able to 20x my net worth over the last four years.
I did this by following my own strategy, helping investors, and also investing my own capital.
I’m a passive investor and an active investor.
I invest passively in deals to grow my wealth.
I also manage other people’s stuff.
You can do this, too!
If you have the money and don’t have the time, then put it passively into deals.
You can work with groups like us here at Bronson Equity or with other groups.
When you do that, you’ll find that your returns will be the same or substantially better.
If you’re doing single family or small multifamily, it will be much better in a syndication because it’s a much more efficient asset.
You’re working with a team hopefully with a lot of experience increasing the value of their investments.
A good group will share specific examples of how they accomplished that.
So there is a way you can invest passively to grow your wealth without taking up more of your time.
I’ve watched many people invest in up to 30 different deals.
They’ve replaced their passive income.
They’ve dramatically grown their wealth.
If you don’t have the money or would rather be more active, I would follow the route of going after larger deals.
How to become an active real estate investor?
Two ways people typically enter into active syndications is either by raising money like we do or going out and finding deals.
3. What Do I Do With My Single Family/Small Multifamily?
What should you do now?
Should you sell all your small multifamilies?
Should you sell all your single families?
One possible solution is to 1031 exchange into a syndication.
That means you would sell multiple houses and roll that money into a syndication.
How does that actually work?
Well, basically, a 1031 exchange is a tax-exempt exchange.
The exemption says you can sell your property if there are very tight timelines, allowing you to roll into a larger deal on a tax-exempt basis.
We’ve had a couple of investors do this.
In 2022, we had an investor come with over $500,000 from a sale and rolled into a syndication around the same time.
We had another investor who came with around $1 million selling a house in California and was able to roll into a syndication.
It doesn’t make sense if it’s less than $500,000 because of the work it takes.
Learning about syndication is another good option for your next step.
I didn’t know what the word syndication meant when I first heard it!
Syndication sounds like a mob syndication or a syndicated TV show.
I didn’t have the context.
Before you get into syndication, learn about how it works.
Learn about how people raise money to do big deals.
Learn what reputable operators are doing.
I encourage you to read books as well as go to meetups, conferences, and events.
Meeting the right people is key.
One of the most powerful people you can meet is another passive investor.
This is somebody who is experienced.
I encourage you to look for that person, get to know them, and develop a relationship with them.
A lot of times people are very willing to share what they’ve learned, both their mistakes as well as their successes.
In summary: Go big or go home.
Don’t go after the small stuff.
Learn about syndication scale.
Invest your money or raise money to find deals.
When compared to larger multifamily, single family and small multifamily typically will not get you to your goal.
Or they won’t get you there fast enough.
Now I want to hear from you!
What are your next steps in your investing journey?
If you’re in small multifamily or single family, will you be switching to large multifamily?
Let us know in the comments!
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.