Real estate entrepreneurs seeking to build wealth and attain financial freedom would be well-served to start in small apartments and multi-family properties, or to add them as an additional income stream alongside their single-family deals.
In this article, real estate entrepreneur Lance Edwards, author of the No. 1 best-selling book, “How to Make Big Money in Small Apartments,” shares three big reasons why you can build a real estate empire faster and more efficiently with small apartments than with houses.
In This Lesson, You Will:
- Learn why small apartments are not sought by hedge funds
- Discover why there is less competition in multi-family real estate
- Find out how you can avoid Dodd-Frank regulations
Hedge Funds Don’t Buy Small Apartments
Hedge funds don’t work in the space of small and mid-sized apartments because it is a too inefficient marketplace for them. Hedge funds buy—and this has always been true—the pretty, large apartment complexes. Hedge funds have to move big chunks of money, at least $3 million at a time, so historically they have bought up large apartment complexes.
But now, they are buying bulks of houses, something that was unheard of before the recession. It is putting deal flow and profit pressure on single family investors like never before.
As I am interacting around the country with students and other real estate entrepreneurs, and maybe you have experienced this, we are finding that hedge funds are buying a lot of houses in bulk. They are buying the big portfolios from the banks and it is putting a lot of pressure on those in the single-family market because deals are become scarce, or you have multiple bidders per deal and it is squeezing profit margins.
For that reason, small and mid-sized apartments has remained the realm of the real estate entrepreneur. Most people are focused on houses, and carry this notion they have to graduate from houses to apartments. It’s simply not true.
My mentor pushed me to get started in apartments because there is little competition. Hedge funds aren’t messing in there, and so there are fewer players in small and mid-sized apartments.
Avoid Dodd-Frank Regulations
The housing market is also seeing a lot of obstacles through the Dodd-Frank law, and the restrictions on seller-financing for owner-occupied properties. There are new restrictions with regards to the ability to sell property and homes on owner-financing, so you need to be cognizant of that so you can sell within bounds.
Yet, with small apartments and other multi-family properties, these regulations usually don’t touch this side of the real estate market.
Dodd-Frank is not applicable to duplexes and above as long as they are not owner-occupied. Dodd-Frank, if you read the law, is part of the Consumer Protection Act designed to protect home buyers on owner-occupied properties. That doesn’t count for most duplexes, triplexes, fourplexes and above.
Better and More Efficient Use of Your Time
Most people get started in the business of real estate by wholesaling. They go through the process of finding a house, they find a buyer, they put it under contract and they flip the house.
And then, they have to start the process all over again. This is no way to build an empire.