Investor · Doylestown, PA · Member since 2017 · 1 post · 0 votes
I have been investing in real estate for the past five years and have acquired 4 single family properties that are performing to my satisfaction. I am now at a crossroad where I am trying to make a decision to either add more single family homes or try to start purchasing multi unit buildings. Can anyone please share their experience with these types of investments and what the pros and cons have been that you have experienced?
Hi Bill. I think the answer depends on your goals. Here's what we've done.
About 4 years ago we got back into real estate after a break of several years and bought a small apartment building. This building is great because it produces reliable cash flow and a single vacancy doesn't hurt much. It provides a good base for us.
This year we've started adding SFR's to our portfolio. We bought one in April and will be buying another next month. We're going this route for a couple reasons. First is, in our preferred market, there are not any multi's available, and the construction costs are too high for us to build one. The SFR's added an appreciation angle to our portfolio and broaden our base of potential renters. Our apartments have a couple families that live there but it's mostly single people. The SFR's have higher rents, and therefore attract a little different renter.
The multi cash flows really well, but likely won't appreciate at a very high rate. The SFR's also cash flow, but will provide more of an appreciation opportunity. Overall I like the diversification. Also, when you're looking at a portfolio of SFR's, they behave more like a big multi in that no single vacancy can hurt you that much.
My personal perspective is to focus more on cash flow and less on appreciation as the latter is less of a given. This is the reason most folks migrate to MF vs SFRS and not the other way around. Also, should be less administrative oversight with one insurance policy, one property tax bill, etc, you get the picture.
Personally I still maintain a handful of SFRs but have not added in a few years since finding more cash flow and less hassle as MF allowed me to hire a property mgr outsourcing additional headaches.
If you are accredited, I'd take a serious look at being part of a larger value add MF property via a syndication. You can get your cash flow, plus scale, forced appreciation, geographical diversification and no weekend calls from residents. I have an investor who used to own a 100 unit property, sold it, and now exclusively invests as a passive investor alongside the GP (experts), he gets most of the benefits w/o any hassles.
Bill Squitieri There isn't a right vs. wrong. I have multiunits but they're 5+ rather than 4 so the loan terms, etc. are different. Generally, like others, I'd say that SFRs do swing higher (and drop farther) when it comes to appreciation. I also think that MFRs have cap-ex advantages. Generally, you'll have less roof-sq-ft per unit, less exterior/siding/etc. per unit, etc. And if you self-manage (I don't) it's just one property to drive by. But you'll probably pay for yard care, water, etc. so there's no "free lunch". And since (if you keep scaling) you can only have 10 conventional loans you can only go so far using that method with SFRs. I also don't think there's nearly the liquidity in the MFR market than you see in SFRs.
Speculating on appreciation is very high risk and not part of my main business plan. With the SFH market being driven by irrational home buyers the cost per door is highly unpredictable down the road. Expenses are higher and vacancies much more costly with SFH investing. Also higher management required due to multiple locations. Profits are generated by volume per property. My preference is always to purchase purpose built rental income properties to lower the risk and increase the cash flow. Investors can benefit from the gravy that someday may come from appreciation, speculators are dependant on it.
Hello and welcome to BP! Apartment complexes versus single family homes. some of the advantages of apartments versus SFH's. one of the largest advantages with apartment complexes is the quantity of unit at one address. The vacancy rates in apartment complexes is typically not as severe to have a single vacancy. the lases on homes is usually longer and maintained more by the tenant. there has been less competition to compete with on apartments. Single family homes typically have better tenants.
The demand must be considered with either one. Cash flow on the first month happens more often on apartment complexes. Adding value is usually a larger return on apartments. The smaller apartment complexes are usually owned by individuals that will consider owner financing. apartment complexes usually require bigger down payments through conventional loans. Apartments are probably more important in location.