Strategy: What's better, apartment complex or a portfolio of SFR?

3 Replies

Okay ladies and gentlemen investors I'd love to hear your thoughts on this subject!   We are just starting on this journey and could use some of your strategy ideas.

This is my situation, My business partner and I are trying to decide whats the best way to get our feet wet. In one scenario we could scrape up the $150,000+/- down payment for a 12-16 unit APT complex but all of our capital would be tied up in that one deal and it would be awhile before we could do more deals without hard money. Or on the other hand we could start growing a portfolio of SFR with the BRRR method.

It would be extremely helpful to hear the pros and cons of each scenario.  I know that the situation always depends on many circumstances but the more viewpoints I can get the more well-rounded and informed our decision can be. 

Thanks!

@John Kinlaw - there is so much personal preference here. It would also depend on your goals. 

A couple of years ago, I pretty much eliminated all the SFR out of my portfolio and have gone strictly with multi. I think it is easier to keep a property above water when there are vacancies. With a SFR when it is empty there is no income vs a multi on a 10 unit with one empty unit you are at 90% occupancy. I rather have 10 units under one roof, which means I only have one room to repair or replace vs having 10 SFR with 10 roofs to repair or replace. You get the idea.

I found managing multi tends to be easier as you have multiple tenants in one location. I can also negotiate better rates with management companies on a 10 unit that generates similar rent at 10 SFR.

One piece of advice is don't max out your cash. If you have $150k, and you go for a larger unit, only put in $125k and keep $25k in reserves. If you go SFR same thing, keep a health 5 figure amount set aside. You will be happy you did.

Good luck and let us know what route you go!

I'd have to say SFRs but I'm a bit biased as I only own SFRs.  My rebuttal to multis is what about a fire or water damage.  You would have several doors out of commission rather than just having it contained to one door.  No matter your decision buy LOW and build a strong relationship with a local small bank that handles portfolio loans.

If you're scraping up $150,000 it doesn't sound like you have the net worth or liquidity to buy a small apartment. Consider bringing in partners with the balance sheet to get a commercial loan.

I just bought a two property apartment portfolio last year (231 units), but I've debated this because multifamily is a more sophisticated and crowded space. I purchased this deal because the 86 year old seller had let the properties go and she wasn't as savvy about the market, in general.

Consider this: market or look for sellers with small single family portfolios. It's a much less competitive space and I think there are many mom and pops out there who are looking to retire, capture equity and take advantage of the sellers market. You're providing value in purchasing as a portfolio because it's a job to sell each home individually AND they save on closing and friction costs (I wrote a BP article about this somewhere).

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