Switching strategies?

Question

Are any buy and hold SFR investors out there switching to multi-family because of the lack of SFR deals?  I am thinking of doing just that as I literally cannot find good cash flowing deals on homes here in PHX.  Yes, I could buy a home built 30-50 years ago in a sketchy part of town that cash flows but that is not my model.  Any thoughts are appreciated.

Account Closed · Answer

Albert,

Have you considered doing development?  Buy your own land and build your own multi-unit complex in or near your town?  How about getting a partner if you're short on funds?

Mike D'Arrigo · Answer

Albert Hasson, I know it's not what you want to hear but I've had Phoenix investors leaving the market and coming to me for Indianapolis property because they can't get decent ROI anymore. I would really carefully weigh the trade offs of an out of state market vs shifting to MF in Phoenix. That could potentially be more risky than going out of state for single family. I find that MF just has more inherent issues than single family. The quality of tenant tends not to be as good. They are more transient so your vacancy rates are usually higher and I find that the turnover cost is generally higher with multifamily. I'm not sure you're reducing your risk by staying in your market and altering your strategy. You might be getting a bigger problem.

Joel Owens · Answer

Hi Albert,

Sure and I completely understand. The buyer I am working with looked over about 50 or so properties in about 5 months time. Their experience was the market was overheated for MF like it was there for single family homes.

I hope you find a different outcome but these buyers are very thorough in their research. This was for performing properties and not semi-performing (30 -70 occupancy) or completely vacant buildings. You might find more yield there but debt service is much higher and turn around takes a bunch of time.

My clients tend to be busy professional so need something turn key that is fully performing but there is still some value add their with cutting costs and minor adjustments to increase yield further.

Albert Hasson · Answer

Joel, 
I am going to look into Phoenix multi family first.  I will say that being a Type A personality I am not totally comfortable with investing out of state.  I need to be able to drive by and make sure the management is keeping the place up, the neighborhood is not going downhill, there aren't cars parked in the landscaping, etc., etc.

Joel Owens · Answer

Hi Albert,

I have clients from Phoenix that are investing in multifamily here in Georgia. They spent many months analyzing Phoenix and looking and the cash on cash just wasn't there so they moved investing elsewhere.

They still have houses still in Pheonix there but are holding a little while longer to liquidate for cash at the peak.

Generally a 50 unit apartment building or larger is preferred so you can have full time maintenance and  property manager on site if you are investing out of state. Maybe there are some areas around Phoenix that are still good but they were saying they couldn't  get anything about the single digits for cash flow for MF that was performing.