The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
Investing in residential real estate and investing in commercial real estate are two completely different spaces. While some investors with portfolios of thousands of single-family residences can do well, those looking to invest larger sums are better off investing in larger multi-family properties instead of collecting residential single-family homes. Single family homes require more of an investment of time and money when compared to the needs of a multi-family space.
Richard Wilson: From an investors perspective, how do you compare investing in residential real estate versus commercial real estate properties?
Ben Marks: So completely different animals. Completely different skill sets, completely different metrics. I have one colleague of mine, owns 900 doors, every single one of them is a single family. And I’ll tell you, the appreciation is nice but man that is – and companies are starting to do that on a very large scale, I think there was just a recent merger, I forget the name of the company it was owned by Colling at one point – but very large where they’re owning they’re trading portfolios of 100,000 single family homes between 2 and 300k. So if you do it at scale, and if you’re large enough, you can run a very nice portfolio. If you’re going to be owning less than 10,000 units, which is I think the majority of family offices, in my experience having started out doing residential and having also done multi-family I think it’s much more economically effective and efficient to do large scale multi-family versus single family. The economy to scale are just not there in single family homes. Every time you have to, you know, make ready for a home, you’re spending 3 to 4x what you’d spend on an apartment. Every home is different, every yard is different, the tenants are different, the marketing, it’s completely night and day. Not to say one can’t transfer from one to the other, I have not seen a lot of folks successfully do both. And I don’t think we successfully could do both when we focus on multi-family. But I think the rate of return and a lot of the metrics are different, and quite frankly more attractive if you’re looking to place significant capital I think multi-family.