Economy of Scale in Multi-Family Real Estate Investment

View of a multi-family house with fire escape staircases
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Most good investments begin with a smart purchase, preferably below market value. The cost to build apartments or other multi-family projects is lower due to common walls, roofs and other savings that come from building multiple units in one location. In many cases, apartment units can be constructed for 30 percent less per square foot than single-family homes of comparable size. So, the real estate investor starts off with more square footage to rent at a lower cost.

Management and Security Costs

Just keeping an eye on multiple single-family rental homes requires travel, no matter how close or far apart they may be. Grouping multiple units in one location reduces headaches and travel. Security costs are lower as well if security is hired or systems are set up for the properties. Installing security systems in one spot may result in a discount.

Save Costs for Maintenance, Repairs, and Upkeep

While single-family unit investor-owners may leave the everyday landscaping and minor maintenance up to the tenant, they'll still get the calls when something breaks. Generally, an owner can negotiate better repair and service rates with vendors who have only one location to service.

Finishes and Fixture Savings

By sticking with the same color schemes for apartments, buying similar fixtures for kitchens and baths, and using common materials for all units, owners save a lot on keeping units looking good and getting them ready between tenants.

Lower Taxes and Finance Costs Per Unit

It isn't always true, but some areas offer lower real estate taxes per unit for apartments than for single-family homes. This is also true because more living area square footage is concentrated on smaller land parcels. Many times, six apartment units can be constructed on less land than two single-family homes.

Financing an apartment project means one loan for multiple units. This should cut per/unit costs for loan fees, appraisals, and surveys.

Less Financial Damage from Vacancies

Although not always the case, multiple marketing units in one location can many times get a vacancy filled faster than advertising a home. There is also the ability to offer current tenants incentives to recommend the units to their friends, which can build a waiting list for the new units. Less time unoccupied means less of a ding on profits.

Just Like Soft Drinks, Cheaper by the Six Pack

It's almost always possible to buy a six-pack of drinks for a lower price than buying six single soft drinks. Carrying it further, a case of 24 will mean a lower per-unit price as well. Carry this concept over to multi-family projects versus spread out single-family rental homes, and you find savings as well.

There are many areas where costs can be lowered when purchasing, managing and maintaining multiple rental units in one location, many times under one roof. Some investors thinking of buying another single-family rental home may find it worthwhile to think of selling the ones they own and concentrating their investment in a project with multiple units in one location.