Remember Econ 101? You know that the economy of scale refers to the idea that we realize increased cost advantages with the increased output of a product. In other words, the greater the quantity, the lower the per-unit cost. This is why big box stores can offer lower prices; they have immense purchasing power, which results in a reduced cost per unit. The same is true when it comes to real estate. Scaling multifamily investments does the same for you: you realize a lower cost overall with a greater potential for profit.

Economy of Scale and Multifamily Properties

Did you know that it is most often less expensive per square foot to construct an apartment building than a single-family dwelling – even if they are comparable in size? This is because you achieve efficiencies when building common walls, roofs, etc., in one place. In fact, square foot to square foot, building multifamily can cost one-third less. Further:

• Your maintenance and repair bills will be less.

  When you’re dealing with the “purchasing power” of a multifamily property, you can achieve exceptional efficiencies on everything from plumbing repairs to roofing replacements.

• You’ll be insulated from high vacancy rates.

  If you lose a tenant in a single occupancy dwelling, it’s huge. That’s a significant chunk of change you are losing. With multifamily properties, you are not dependent on a single tenant. You essentially spread the risk (and if you market your property effectively, you will have a waiting list to minimize vacancies).

• Lower purchase price sound good?

  It’s possible to buy several units for a lower per unit price than it is to buy just one. 

• You’ll save on property management and security.

  Due to the centralized location, you will save time, money, and hassle when it comes to hiring professionals to handle property management, security, and other services (e.g. landscaping). It’s easier for these pros to make a profit as they are cutting down on travel and other expenses.

Make the most of this opportunity!

Hone Your Multifamily Investment Strategy

Three tips for an effective multifamily investment strategy:

• Learn.

  Educate yourself on the ins and outs of multifamily properties. It can seem intimidating, especially for first-time investors. There are endless resources out there, from podcasts and webinars to books and good old Google Alerts on relevant topics. 

• Leverage.

  Take your learning and run with it. As your investment strategy evolves, you can begin considering a partner who can handle aspects that you cannot or do not wish to (e.g. managing renovations, managing tenants, overseeing repairs and maintenance, etc.).

• Network.

  Networking is key to every real estate professional, and this is true of the multifamily property world. Think of it as a team sport; you want to have other professionals (including those in complementary fields, like finance, real estate law, plumbing, contracting, etc.) on yours.

Do you need help developing or strengthening your multifamily investment strategy? Contact Belmont Associates to learn how.