Episode Summary:
In this episode of Real Investor Radio, Craig Fuhr and Jack BeVier delve into the ongoing debate between single-family and multi-family real estate investments. They explore the historical context of these asset classes, the shifts in market dynamics, particularly in cap rates, and the current opportunities and risks in the multifamily market. The conversation also touches on financing strategies for multifamily investments, emphasizing the importance of understanding expense ratios and realistic cap rates. Overall, the discussion provides valuable insights for investors navigating the evolving real estate landscape.
Episode 103 Overview
Jack BeVier shares how he started in commercial real estate but quickly gravitated toward single family homes. At the time, they offered higher cap rates and better risk-adjusted returns – especially when compared to nearby multifamily buildings. Although more operationally intensive, single-family rentals delivered attractive yields for investors willing to hustle.
The Debt Arbitrage That Fueled the Strategy
Multifamily real estate had better financing: fixed, long-term, non-recourse loans from Freddie Mac and banks. In contrast, single family financing was limited and expensive. As a result, multifamily cap rates were compressed. This discrepancy inspired Jack’s team to lean into lending on the single-family side, capitalizing on what they saw as an underpriced risk.
A Market Inversion No One Saw Coming
Surprisingly, post-2021 liquidity flipped the traditional dynamic. Multifamily properties now offer higher cap rates than single family homes. If that trend continues, multifamily may present a better unlevered return profile. Jack suggests investors re-examine old assumptions. The “next rung up” may be more lucrative than many believe.
Buying Opportunities in the Middle Market
Rather than chasing institutional-scale assets, Jack focuses on buildings with 5–150 units. He shares that over the last year, cap rates in this segment have fluctuated. However, they may be softening again. As a result, it could be an opportune time to buy small-to-mid-sized multifamily properties; particularly those with stable cash flow and modest value-add potential.
Avoiding the Pitfalls of Low-End Multifamily
Bevier warns investors to steer clear of very low-income multifamily housing. These properties often have high vacancy, costly turnovers, and difficult management.
Financing Strategies: Banks, Freddie Mac, and Credit Unions
For multifamily properties above 10 units, Freddie Mac small-balance loans and local bank financing are viable. Jack recommends credit unions as a smart alternative, given their lower cost of capital and flexible terms.
Bridge Loans and the Path to Stabilization
Dominion Financial sees strong demand from experienced investors transitioning into multifamily. Jack emphasizes the importance of realistic underwriting – especially around expense ratios and cap rate assumptions. For strong deals, they offer bridge loans based on 65% ARV, aligning with future Freddie Mac takeouts. Deals that once didn’t pencil now often do.
Final Thoughts
Jack closes by encouraging investors to question long-held assumptions in the multifamily vs single family real estate investing debate. Market conditions have changed. Above all, smart investors will re-evaluate what delivers the best return today – not just what worked yesterday.
