Scott Dillingham: 00:21

Welcome back to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today, we're gonna be discussing single family property investing verse multifamily investing. And, also, I'm gonna go into my recommendation for you depending on where you are in your investing journey. Now if you never invested in real estate, this would be a great recording for you to decide should you get in investing, and if so, you know, what you should be investing in.

Scott Dillingham: 00:48

So we're gonna dive into some of the benefits. First, I'll talk about the benefits of single family investing. Single family is a term that we refer to when we're speaking about a single house. So just a one residential house with 1 unit. Sometimes people will classify a home with an in law suite as single family as well, but, primarily, it's just a single property.

Scott Dillingham: 01:13

Now the single family investing from a cash flow standpoint, you don't make as much as when you're buying, you know, a multiple unit property, but it does have many benefits. So when you first start in investing and truly, actually, that would be my suggestion is if you are first starting out in real estate investing, you start with single family and I'll explain why. However, the choice is yours. But when you invest in a single family property, It's probably the hardest. The very first one is the hardest out of all your portfolio to buy.

Scott Dillingham: 01:50

And the reason is say you just bought a home that was owner occupied, and now you want to rent it out. It's empty. So you've got to carry that mortgage alone. So the very first property that you buy will actually be the hardest one to own. Hereafter, it actually becomes easier because you get multiple properties, you'll have multiple incomes coming in.

Scott Dillingham: 02:12

So even if you have a vacancy, it won't matter because you'll have other properties to carry you forward. So I just want you to know and not to get discouraged, but the first one will be the toughest because if there is a vacancy, you're covering it all yourself. Okay? Now I mentioned I was gonna dive into the benefits, and that's not a benefit, but that's more of an FYI that you should know just so you have the right mindset when you're getting into it. But a lot of the benefits of the single family, investing is say you absolutely hate being a landlord.

Scott Dillingham: 02:44

Say you done it. Maybe it's a year down the road and you don't like it. With a single family property, it's very easy to sell it on the market. When you consider the size of the market, you have access to all buyers. Right?

Scott Dillingham: 02:58

You have potential investors that would be a buyer, and you also have people that are looking for a home to move into that would be a buyer. So it's the easiest type of property, and you can get rid of it usually the fastest if you want to get out of it. So from an escape plan, the single family properties are one of the easiest to get out of. Now as far as profits and things like that go, because we're in a housing shortage right now so I'm recording this in early 2022. So depending when you're listening to this, we may or may not be.

Scott Dillingham: 03:29

But early 2022, we are in a housing crisis. There's not enough inventory for people that wanna live in Canada, and the government of Canada has announced that they're increasing the amount of refugees and new to Canada people that they're accepting. So it's gonna further fuel the housing crisis. Now there's a bunch of things that people are doing behind the scenes to try to stop or minimize the housing crisis, but as of now, there is one. Single family properties, because of that, they tend to really accelerate in appreciation.

Scott Dillingham: 04:03

Now, obviously, that's not all markets. So, again, do your research on your market, but I'm mainly referring to the markets that I invest in, which is within Southwestern Ontario. And the housing is going up very quickly. So as an investor who's buying a single family property, you get to ride that wave of that huge appreciation. Another thing, and this applies for whether it's multifamily or single family investing, but when you rent out a property, the tenant pays your mortgage ultimately for you.

Scott Dillingham: 04:33

Right? Because they pay you the rent, and then you use that money to pay the mortgage. So the amount that you owe on your mortgage shrinks, and it's not paid by you unless, of course, there's a vacancy, but it's paid by somebody else. So that is a huge benefit of investing in real estate is that the debt gets paid down. So you've got the house price going up, so the value goes up over time.

Scott Dillingham: 04:57

And then you've got the mortgage amount reducing over time because the tenants are paying the rent. It's a win win scenario. Then depending now I know this is getting tougher, the costlier that the houses are. But on a single family property, depending on your location and how you bought it and, you know, what the property looks like, what you can rent it for, there's still people that can have a bit of a positive cash flow from this where you'll make additional income per month. Now this would be a disadvantage compared to multifamily.

Scott Dillingham: 05:30

Right? Because when you have multiple tenants living in a single property, your monthly cash flow is gonna be greater than a single family property. But at least a single family property gets you in into investing, get your feet wet, and you can see, you know, how you like it. This is what I would recommend for a first time investor. Now over time, after you get a couple properties, you may want to shift and change your strategy.

Scott Dillingham: 06:00

So it also ties into the interest rates and the mortgage products. So for real estate investors, especially new ones that are not a 100% sure that they want to keep investing, is I would recommend a variable rate mortgage. And I know they're gonna go up. They're projecting even 1% higher this year, so they're gonna go up. But the thing with the variable rate mortgage, why I really like it, is it only has a small 3 month interest penalty, so they're extremely easy to get rid of.

Scott Dillingham: 06:33

And that is what I encourage you to do when you're first investing is get that variable rate. Now if you've owned the property a year, you've got it rented out, and maybe you've had some hiccups, but you've decided that you like investing and you want to continue, we'll dive into the multifamily next because that's the next evolution. But as far as the rates go, if you decide that you like this property, you're gonna keep it, then you can always lock into a fixed if you're concerned with the variable rates continuing to increase. It gives you that ability to cancel it with minimal fees and sell the property if you absolutely want to get out. Now one of the very first episodes that I did, I believe we had, what Tyler Soulier was on, and we talked about the importance of getting a property manager.

Scott Dillingham: 07:21

And I've said it in multiple episodes, but when I see clients that apply for mortgages for investment properties, and then they come to me and ask me the penalty because they're selling and getting rid of it. What I've discovered is they try to they're doing everything themself. They're not working with experts in the field and they've made a lot of mistakes and they're fed up, and they want out. So I encourage you, even if it's a single family property, get your property manager. It will make your life so much easier because they know how to screen the proper tenants.

Scott Dillingham: 07:53

They check for income. They even check credit, some of them, and they'll know. And some of them, there's even a database of bad tenants that the property managers share amongst themselves and amongst different real estate investing groups. So they'll even reference those and see if your potential tenant is a bad tenant, where if you're just diving into this and putting someone in there yourself, you're at risk. So even if it dives and cuts into your profit, I would absolutely recommend a property manager.

Scott Dillingham: 08:21

And maybe it makes it so you break even on one property and you wanted that extra cash flow. I would take it as okay. So you're breaking even. You're not getting that cash flow, but look at all the headache you're saving. That's worth something.

Scott Dillingham: 08:32

So that's worth money, but this is your you're just getting your feet wet into investing. So I think it's okay at this point if you're not making killer money. What we'll do is we'll change your property type, and we'll discuss multifamily investing in the second part of the show here. But that's where the natural evolution is. So I believe it is okay if you don't have that strong cash flow on a single family house in the very beginning because you're following the advice and getting a property manager and all those other things.

Scott Dillingham: 09:01

Do my philosophy is to buy for cash flow. I I'm suggesting this in a way for you to just try it and see what you think about it. Now we have to take a quick pause. When we come back, I'll talk about the benefits of multifamily investing and the natural transition for an investor who has purchased them all or a single family who wants to get to the more advanced levels of investing. Okay.

Scott Dillingham: 09:25

Welcome back. I'm excited to chat about the multifamily investing side of things. This is where I'm in now, so it's something I'm more passionate about. But I started with single family properties. The advice that I'm sharing with you or suggestions is based on exactly what I've done.

Scott Dillingham: 09:42

Okay? Keep in mind with all advice that you hear online, on TV, whatever, you have to speak to the experts around you. Right? It's this is meant for entertainment purposes, of course, but it's all from things that I've done. So I'm not just making things up here.

Scott Dillingham: 09:58

But, so if you've decided that you like the single family properties and you followed my advice and you got the variable rate mortgage, you will have a decision to make. And your decision will be, should you keep the single family property and buy something bigger, or should you sell it and move on to something bigger? So there's 2 options there. I'm at the stage where I've got, a handful. I started with single family, then duplexes, 4plexes.

Scott Dillingham: 10:26

So I've got 2 single family homes left that are rentals. The one of them I've owned for so long that I have so much equity that I can actually sell it. And there's a 12 unit apartment building, in Windsor right now. And it could be sold by the time this transpires, but there's a 12 unit building that the down payment would be exactly the equity that I have in that single family house that I can sell. So I can go from one to 12 units just by selling this property.

Scott Dillingham: 10:55

So I haven't finalized my decision on if I'm selling it or not yet because I was going to save that one for 1 of my kids. So I'm we're debating between my wife and I if we save it for our child or we invest in this bigger one now and we'll get them a house later. So that's a family decision we have to talk about, and those are things that'll come up with you too, right, that you'll have to discuss. So it's not always about the numbers. You have to look at your family scenario, but I think we're leading towards selling it and getting this apartment building if it's available.

Scott Dillingham: 11:25

And even if it's not right, the the equity is substantial in this property that would would just buy another one that comes along. So it's not a problem. But the benefits of multifamily is that you have multiple units in one property. So if there is a vacancy, it doesn't matter. The other units will cover it.

Scott Dillingham: 11:41

The potential for cash flow is much, much greater in a multifamily property. Even repairs and renovations are potentially cheaper in multifamily because if you think about it so you're doing the flooring on a single family property, or you're doing the flooring of 2 units in a 4plex. You can work things out with a contractor. Right? Because it's based on square footage.

Scott Dillingham: 12:02

It's usually how they bill you. So you can say, hey. There's a lot more square footage here. I want a bit better of a price, and then potentially you can get that better pricing. And some of the hardware stores have those buy more, save more deal deals where, you know, the more money you spend, the more you save.

Scott Dillingham: 12:17

So, obviously, if you're buying more flooring, you can save now. Obviously, the specials are not always available, but, usually, you can get those discounts. I've got Home Depot sorry. Home Depot contractors card. And with it, I get cashback on my projects.

Scott Dillingham: 12:34

So the bigger the project, the more I spend, the more the cashback. Plus, if you have a really big project at Home Depot, you could sit down with their billing department, and they can potentially come up with a a custom price for you. That adds to further savings. Right? Where if you're just buying a 1,000 square feet of flooring, you're not gonna get that type of a deal.

Scott Dillingham: 12:54

Potentially, your renovations and upgrades to the property can be cheaper. Then you also have the fact that with all those extra tenants and having that positive cash flow, you could keep that as profits, or you can convert it to mortgage paydown rights. You can get your mortgage paydown even faster. I do find the values on multifamily properties are heavily tied to the rent. So from an appreciation standpoint, I think they can appreciate really nicely as well.

Scott Dillingham: 13:21

But I think they appreciate a lot stronger if you have stronger rents in the property. If you've got tenants that have lived there for 20, 25 years and you're assuming them when you're buying this building, the appreciation, I believe, will be lower for you. Again, that's not always the case, but an investor looking at a property that's for sale, if the rents are really high on one property or they're really low on another, they're gonna be willing to pay more for the property where the rents are a lot higher. It's just one of those things that you will get more on a multifamily home if you have higher rents. Now the other thing with multifamily that a disadvantage.

Scott Dillingham: 13:54

Right? So it just depends because some people, they don't even like to get into multifamily. And some of the reasons would be additional headaches. So for an example, on a single family house, you're not gonna get complaints that the upstairs tenant was being too loud or had a party. That's not gonna happen.

Scott Dillingham: 14:11

But if you're in a multifamily home, you're gonna have that or maybe they just don't get along. There's always complaints and there's fighting and right? So there could be additional headaches from the multifamily property as well. So, again, that's why it really makes a good, strategy to hire a property manager to do that. My property manager, a great guy, CFK Management is who, I use personally in Windsor.

Scott Dillingham: 14:34

And I know Frank will match up tenants based on their personalities. So if he's showing a multifamily property to somebody, he will analyze the tenant base that's in that property and only put tenants that he believes are similar in there. And that might extend a vacancy a month or 2 because he's looking for that right specific tenant. But for you as an investor, your headaches are so much less because you're getting in a group of people that connect and can live nicely together. So there's many benefits.

Scott Dillingham: 15:12

So for me personally, I would suggest, and what I'm doing myself, is if you like investing and you wanna move forward and you've built up these single family properties, after a couple years, dispose of them, but only in the event of you upgrading. I try not to sell anything unless you had to. I sold, 2 properties to to buy Land City, so there's no mortgage here because I used my equity in that. Then I sell a worse performer to buy a better performer. So it just depends on what your overall strategy is, but that's what I would do.

Scott Dillingham: 15:46

I'd start off on the single family properties. And if you're an investor that has a bunch of single family properties, I would consider, right, speak to your friends, family, accountant, lawyer. You wanna make sure everything's okay before you move forward, but the strategy would be to sell those single family properties, get into those bigger ones so you have that stronger income, that stronger cash flow, and evolve your portfolio forward. Those are the major differences between the single family investing and multifamily investing. It does depend on the stage that you're in.

Scott Dillingham: 16:18

But once you can start getting into the 6 or more units, then you can start to get CMHC financing for investment properties. We have a dedicated commercial department. We've got 3 full timers in there right now that do those CMHC insured mortgages. So many investors don't even know that's an option. Now CMHC, they changed the rules recently where depending on the project, like, if it's an equal project or if it's, geared towards lower income multifamily property, they'll finance it for as little as 5% down.

Scott Dillingham: 16:51

Usually, though, I'm finding our investors are getting between 15% down and 20 percent down. However, their amortizations do go longer at CMHC. I'm often seeing 35 years to even 40 years amortization on multifamily properties, which gives the investor that super strong cash flow because it's at a like, the amortization is so much longer that you've got that cash flow. And as an investor, when you're getting into investing, a lot of clients fear debt, and they wanna pay it off quickly. But when you're an investor, you realize you actually don't wanna pay it off quickly.

Scott Dillingham: 17:27

Why? The tenants are paying it off. So there's no rush. There's no motivation for you to pay it off quickly. The tenants are doing it.

Scott Dillingham: 17:33

And by keeping those extra profits, you can build up your down payments faster to get additional properties, or you can use them for well, if you wanna vacation around the world. Right? That's what some people do. They use their proper property profits to buy things that they love, travel, all that good stuff. So it's completely up to you what you do with your money.

Scott Dillingham: 17:53

But the world of investing, I have personally found in real estate with how how I was able to get the greatest returns compared to any other investment that I have personally done. I'm hoping for you, you consider it and you become as successful at it as I am. Looking forward to chatting with you on the next show. And if you are in need of a commercial mortgage, give us a call at the office, 519-960 0370, and we can get you in touch with our commercial team. Or if you're buying residential, we'll get you in touch with them as well.

Scott Dillingham: 18:29

Okay. Thanks so much. Take care.