MFH go big or go home?

Question

Hey guys and gals,

I’m a new soon to be investor. I don’t own any properties at the moment. I’ve been reading, studying, and attending local meetings to learn before I jump in.  I have a really good paying job but it’s not so fun anymore.  That’s what led me to real estate. I’m a big investor in my 401k plan as well as some other stock market investments. I feel I have enough there and want to diversify in to real estate.

I’m looking for opinions good and bad. Please feel free to shoot me down and give honest feedback.

I can come up with about 200k cash without touching my retirement and have a 800+ credit score.  I don’t have a particular deal at the moment but just exploring all possibilities.

Would you buy: ( all deals would have to look good numbers wise)

18 to 24 unit complex with PM?

A 4 plex at a time with PM?

SFH 1 by 1?

Matthew Mason · Answer

Hey Michael,  there's a lot of debate out there between starting small or GOING BIG. I think it really depends on your goals and idea of how to you want to get there...   as far as financing your looking at commercial (5+) with 20% down or residential (4-) with 25%. I wouldn't spend time on anything less than three units. A lot of people say go BIG off the bat. While not a bad idea tho think big, I see great value getting your feet wet with a couple smaller, (3/4 units)

Read up as much as you can and look at a few deals a day. You'll be ready when you find one!

Michael Mannina · Answer

All good points guys. The 4 plex strategy was my original gut feeling and the route I’ll take.

My goal is to have a larger enough portfolio to leave my W2 job. It’s hard to do that because of the wage I’m paid. It’ll take me many units to be in that position. I have to start somewhere though.

Jaysen Medhurst · Answer

@Michael Mannina, I would not "buy all deals that look good." Scattershot is not a strategy. Before you really get going take some time to get clear on your goals (financial and otherwise) and define your strategy. This will change with time and experience, but you need some idea of where you want to go. Otherwise, you'll be pulled in dozen directions and never really make any headway.

I suggest dipping your toe in the water with a small MFR.  Spend your time analyzing properties so that you can take action when a good deal comes along. With $200k cash you'll have options. May also be worth partnering with an experienced investor. You put up some cash and they allow you to shadow them during the process.

Alina Trigub · Answer

@Michael Mannina

Welcome to BP community!

In terms of your question, a lot depends on your future plans. Do you plan on buying many properties? In the same area? Using the same PM? Managing SFHs yourself?

Most people (including myself) that chose the MFH route prefer it over SFH due to the economy of scale. Take 5 units versus 5 SFHs for instance. Would you rather have one closing or five, pay attorney once or five times, fix one large roof or five separate roofs? The list goes on but you get the point.

The same way of thinking will apply to residential MFH (up to 4 units) versus commercial (5+). It's cheaper to hire PM to manage (5+) commercial MFH (percentage wise of course) than a quad.

Best!

Patrick Reynolds · Answer

I would go the route of the 4 plex first. It would be much less skin in the game to start off and allows you to learn the basic ins and outs of multiple tenants, working with a property manager, repairs, contracting estimates etc. Think of it as a way to scale to a larger complex while ironing out the kinks as you develop your systems. Any bumps you come across and use as lessons will be on a scale small enough not to hurt you and big enough to learn from. Once you do one deal first and are confident in the team you build and the processes you put in place, you can leverage that to scale up. That would be the route I would take given your scenario; SFH would be too slow and if you are considering a larger complex, having a system in place that manages multiple units would be necessary.