This week we're diving into part 3 of our Single Family VS Multifamily mini series and asking: What are the benefits of Liquidity in an investment? There are some clear pro’s and con’s to each. Yet what’s most important is being clear upfront which one is right for you. Maybe you want to step off the rollercoaster of emotion and invest in an asset for the long term or perhaps it’s more important that you can sell quickly. All this and more covered in episode 125!
This week we're diving into part 3 of our Single Family VS Multifamily mini series and asking: What are the benefits of Liquidity in an investment?
There are some clear pro’s and con’s to each. Yet what’s most important is being clear upfront which one is right for you. Maybe you want to step off the rollercoaster of emotion and invest in an asset for the long term or perhaps it’s more important that you can sell quickly. All this and more covered in episode 125!
KEY TAKEAWAYS
1. Single family is more liquid because it sells faster than multifamily
2. If you need to free up cash quickly then single family is for you
4. Multifamily is a more stable investment because it can't be sold quickly in a panic.
5. Removing the emotional component is key - so knowing yourself & your goals first will help you reach success
6. Trust operators with your investment. They only get paid if you do!
LINKS
Learn more about investing with Steven at https://theinvestormindset.com/invest
Title: Single Family Vs Multifamily Part 3: Pro’s and Con’s of Liquid Investments
Duration: 00:13:24
Host: Steven Pesavento
(00:00) Narrator:
I've got some really exciting news. Our operating partners on the commercial multifamily space have agreed to invite new investors into some of our future deals. We are proud to bring these institutional style opportunities to investors within our community. In order to have access to these investments, you have to sign up at theinvestormindset.com/invest. And we have thousands of people who listen to the podcast and we typically only allow 50 people to invest in each deal. So, make sure you head over there right now, because once we send out the email announcing our next deal, it'll likely be sold out and oversubscribed. So, get started at theinvestormindset.com/invest and I look forward to seeing you on the inside. This is the investor mindset podcast and I'm Steven Pesavento for as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better and how we can do better. And each episode, we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
(01:01) Steven:
Welcome back to this week's mindset minutes episode of the investor mindset, I'm Steven Pesavento. And each week we dive into mindset, tips and investing strategies to help take your business to the next level. And this week we're continuing our four-part series comparing single family versus multifamily and answering the question, which one is best for you. So, join us each week as we continue to dive deeper into the tips and strategies to help you reach true financial freedom. And you can do that by hitting the subscribe button and dropping us a review on your favorite platform, if you love what we're doing. So as a reminder, setting the stage here, we've defined single-family as any property that is below five units. So, we're putting together all of the single family and small multifamily, all the residential properties, we're putting that under a single family and anything over a hundred units, we're calling multifamily or commercial multifamily. So, we're leaving out everything from five units to 99 units specifically to make a drastic comparison. There's some benefits to both, there's some benefits to the ones in the middle. For this discussion, single-family includes everything below five multi-families, everything above a hundred. And as a reminder, you guys, I've been in single-family for the last three years, done over 200 deals. I own several single-family rentals, and I've also made a shift to focusing exclusively on commercial real estate. So there's some big benefits to both. I absolutely love some of the benefits of single family, I absolutely love some of the benefits of commercial and multifamily and we're going to talk openly about some of those. So you can make your own decision on what's the best fit for you. So today we're going to be diving into some of the pros and cons of having assets that are more liquid or have a higher liquidity than others.
So, as we look at the difference between single-family and multi-family, both of these asset classes are inherently less liquid than when we look at something like stocks or bonds, or frankly, you know, cash in the bank. Each of those things can be sold, or it can be gathered together very, very quickly. But when we look at real estate, single-family, you know, takes a couple days, a couple of weeks to sell. Multifamily, takes a couple of weeks, a couple months or longer to prepare to sell. So we're going to dive into some of the benefits of each of those right here together.
So, when we look at single-family, in particular, it's a much more liquid type of asset because there's many more different types of buyers. So regardless of the economy that you're in, we know that a homeowner can buy a single-family property, a landlord or an investor can buy a single family property, Hedge fund can buy a single family property, right? There's a lot of different folks who can come in and buy these properties and investors are able to buy properties in, you know, under a week, you know, fairly quick time frame. If you're looking to maximize, obviously selling to a homeowner that is going to take a little bit longer, maybe the 30-day mark, maybe 60 days of you really thinking long and a long term market. And we'll compare that to a large multifamily. These properties can sell quickly as well but I think realistically, we all know when you're selling a $10 million building or a hundred unit plus apartment complex, there's a lot more due diligence. There's a lot more that goes into it. And so typically those buildings are going to take, you know, months to sell and months to actually get closed. And so it's a much longer process to get that property prepared, which makes it inherently less liquid. So one of the benefits of having something that's more liquid like a single family home is that when we're in a place where we need that cash, where we want to make that sale, or we make a decision, whether that's logically or emotionally, that it's time to sell, we're able to move forward and make that happen pretty quickly. I have some single family rentals that I'm in the process of selling, I was able to, you know, have the tenants move out of those properties or sell it with the tenants in place. I was able to renovate that up pretty quickly and I was able to get it on the market within a matter of weeks and have that property sold. But when I'm looking at some of the commercial assets, some of the much larger multifamily properties, they don't really sell that quickly, they take longer to close. They take longer for the buyer to finalize and prepare and complete the inspection. And there's just usually a lot more moving pieces that I'm going into that. But one of the things that I think is a benefit about real estate in general is that it's less liquid. So when you're talking about a stock and the stock market drops in a moment overnight, one of the reasons that it drops so quickly is because of how liquid it is. Meaning people can buy and sell just within a moment. They can decide and snap their fingers and boom, all their assets are sold, but because real estate takes a little bit longer, it also takes longer for the impacts to start happening. And one of the benefits of having e-liquid assets, meaning assets that you can not sell quickly or may not be able to sell it all, is that it prevents you from making emotional decisions. It prevents you from making those quick reactionary decisions when something bad happens in the economy. And for all of those, regardless of when you're listening to this, when coronavirus hit many people in the stock market sold quickly, they lost a lot of value in their portfolio. And some of them sold at the bottom of the market, losing millions, billions, if not true, billions of dollars in net worth in that event because they sold right. They sold at the low, they sold when they were worried and in fear.
However, when we're talking about real estate, one of the benefits is that being illiquid, we don't have that option, we have to think things through. And so we have to think things through even longer when we're talking about something that's going to take much longer like a multifamily commercial building to sell. And if you're invested passively in a multifamily syndication or a partnership, the benefits there is that you don't have the right to sell. Now there's usually provisions that allow you to, you know, exercise the right to, you know, offer your shares to someone else or the ownership team to be able to buy those back. And you know, most of the time there's always a way to, you know, sell so that in an emergency situation, you can get your capital back. But one of the benefits of not being able to sell quickly or slowing down that process is that you don't have to jump on that roller coaster of emotion. What you do with real estate is going in upfront. You're making that decision from day one, you're doing your due diligence upfront, you’re taking the time to understand the asset, you're taking your time to understand the market, you're taking your time to, most importantly, understand the operator. And if you're the operator in single-family, you're understanding what skill sets you have to bring to the table. And so when you make that decision to purchase, you're essentially putting off the ability, you're making a decision to not be liquid anymore. To put your cash into this asset that's going to give you, you know, hopefully phenomenal returns in the long run, but you also choose to step off that emotional roller coaster and especially when you're talking about participating from a passive perspective in multifamily or commercial, or potentially even passive in single family. When you're stepping into a passive role, you don't get to decide what happens so, there's no reason to be emotional. There's no reason to be upset, you don't have control and that lack of control actually is really, really nice. Now for a lot of us, we like to be in control. A lot of us, we feel like if, if we're the ones making the decisions, things are gonna work out better. And sometimes that is, and sometimes, you know, honestly for the everyday person, it's not true. It's not true that, you know, an everyday Joe off the street is better equipped emotionally and with experience to make decisions than a highly experienced hedge fund manager or a highly experienced, you know, commercial syndicator, those folks who are in these positions, who've gone through cycles, who've bought and dealt with this before are most likely in a better position than the everyday person to decide what's the best thing for the investors.
One of the things to remember too, about these commercial assets, these operators, they really only make money if the deals succeed. They only make money if you make money as an investor. So when that's true, we've got to trust their judgment, we've got to trust their experience and their track record. And if somebody is doing something wrong, then obviously there's things in place to pull back those controls. But one of the benefits of real estate that I absolutely love is how e-liquid it is, and that can really come into our benefit. So when we look back and just reflect really quickly on the two – single family and multifamily, both have the benefit of not being as liquid as many other types of investments. And one of the benefits of single family is that it's a little bit more liquid than others. So if you're looking for an asset to invest in, that's in real estate and you're looking for that direct ownership piece we talked about, and you're looking for something that's a little bit more liquid, and you want to be able to sell it and have multiple different types of buyers, single-family can be a great option. That might be the option for you.
If you're looking for an asset that's less liquid, that potentially has only a certain type of buyer, but you're able to benefit from some of the other advantages of the asset class. And you potentially know that you're the type of person who would become emotional or want to make some of these decisions or have in the past made bad decisions during emotional times, then, making the decision, when you're in the right state, to put your money in the right hands of the right operator could be the best option for you.
So I look forward to you guys, continuing this conversation in the Facebook group, head over to the investormindset.com/group, and you can get direct access to that Facebook group for free. And if you're looking to learn more about multifamily, if you're looking to understand more about the different resources that can help you become educated, whether you want to be an operator and go out and buy and manage these properties yourself, whether we want to be a passive investor or whether you're in single family, and you just want to learn more about the asset class, I highly encourage you to head over to the investormindset.com/multifamily. We've got a lot of free resources available and continue to put more and more out every single day. So, please take advantage of that. And of course, I want to thank you guys so much for all the support. Thank you for being here and make sure you tune in to the future discussions as we continue to dive deeper into this topic. And I just want to remind you guys to live a life worth inspiring others, and you can do so today by applying some of the stuff we talked about, in your life, making some of the decisions for yourself, which is going to be the best place for you to invest and build that true freedom for you and your family. And so wrapping this up in a bow, the mindset of an investor in real estate needs to be one that understands some of the benefits of having e-liquid assets, of being able to make decisions upfront on what's going to be the best, taking the time upfront to make those decisions, and then benefiting from, or, you know, dealing with the consequences of those decisions in the end.
So make sure you hit subscribe, if you're just joining us. Make sure you drop a five-star review, if you've been listening for a while and you love what we're doing. And I look forward to seeing you guys on the next episode.
(12:56) Narrator:
Thank you for listening to the investor mindset podcast. If you like what you heard, make sure to rate, review, subscribe, and share with a friend, head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next.