Multiple single houses with high returns or 1 multi-family?

1 Reply

Hi everyone,

I have $100,000 and am so indecisive of what to do. I'm stuck at a fork in the road and I'm hoping for some help from some of the smartest guys on the web. 

The first option is buying single houses with a friend via tax deeds in the Midwest of the US for about $45k all in and the rents are $900 per month. I plan to purchase all cash and since this house will be worth about $65k, I plan to refinance, cash out and do it again to another 3 properties or up to 10 if I can find a portfolio lender. My cash on cash if I bought all cash would be about 12%. If I cash out and get my $45k back, I then have $0 invested in this house and the returns would be infinite (until a new roof, HVAC, etc is needed). Yes, I've already confirmed with a lender that we can do this, but of course the limitation is 4 properties (or 10 with a portfolio lender, if I can find one!)

The second option is multi-family. I'd use the $100k and buy a $500k 10 unit and my leveraged cash on cash would be 10%. I can't do the cash out refi to get my $100k back to buy multiple properties. With this route, it'd be a 2-5 year hold and anticipate rent increases to sell at a higher price via cap rate. The benefit I see here is really the possibility of forced appreciation and scalability.

I truly see multi-family as the better option because this was how I built my portfolio in the past, but the reason why the single houses are singing to me is because 1) the 12% returns and 2) the cash out/refi option. I don't want to rule out single house just being I can sometimes be bias and egotistical by wanting bigger things, so am turning to BP for guidance. 

My background is I got a divorce last year, lost all assets and am rebuilding my portfolio. If you were in this position, white route would you choose and why? 

This really will come down to personal preference.  Some people love the multifamliy with everything in one place and others like to diversify.   Location location location is key here.

You will also likely have higher expenses with a multifamily depending on what the condition of the property happens to be.

Will you be managing the properties yourself or having someone else manage it?

Will you be a buy and hold investor?

What is your goal long term with real estate?

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