Looking to grow from SFR to MFR

10 Replies

Hi there,

I have just purchased my second SFR in Indy and now looking to add a MFR to my portfolio. I am in the process of learning as much as I can on MFR since it is different than purchasing a SFR. The markets I am looking at are Kansas City, MO and St. Louis, MO. I am thinking of selling one my properties in California that has 200k in equity in order to to a 1031 exchange and purchase a MFR. Preferable a 12+ unit Multi-Family Residence.

Does anyone have experience doing this? Also, does this strategy sounds reasonable in today's market?

I am hesitant to pull the trigger since this takes a good deal in today's competitive marker and the time process that needs to take place using a 1031 exchange.

I open to other markets if the numbers look good.

Thanks in advance!

Hi @Israel R. , I think taking your money to a different market is a good idea. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.

A very good source of local analysis is rereport.com.

Many folks I work with are tired of managing property. They want a “hands-off” investment alternative. They don’t want to pay capital gains taxes, and wish to perform a 1031 exchange to solve that issue. DSTs (Delaware Statutory Trusts) can offer them a viable option.

@Israel R. For what it's worth I don't see the 'why' in terms of your move from SFR to MFR. Is it purely because you want to 1031? If the SFR in Indy is working well, why not buy another 5 of them? I'm not saying you should, I'm a fan of commercial multifamily but a lot of people (on BP) seem to think it's almost "necessary". Then they go down the road and see a 5 year fixed-rate loan with a balloon, 20 year amortization timeline, and those pesky words: full recourse, and decide that a quad is better. Anyway, long way of asking what the "why" is for you. And if you're invested in Indy, I'd stick with that market if you want to make a move. It's anti-diversification but at least it's (presumably) a devil you know...at least more so than KC and St. Louis.

John Casmon specializes in that market type.  I am not sure if he works in the StL market.  Kevin Brauer with Noble Restoration specifically works in the StL market and rehabs non-performing buildings into apartments.  I know they are completing a few at the moment.  They are both BP members

@Israel R. I'm staunchly pro-multifamily compared to SFH for a few reasons, but one of the main ones is that it's a more robust income stream compared to a SFH. If you have a vacancy in a SFH, or an eviction, or whatever else, then that property isn't returning anything as long as that's ongoing. You'll see different performance between property types in different markets (surprise), so if you'd want to learn more about the St. Louis market I'm always happy to talk shop.

@Israel R. I'm trying to sell off my 10 turnkeys (one in Indy) because Mfh is the way to go. I'm going to not do a 1031 because it can't go into a syndication LLC and it only makes those 1031 custodians rich. Let's connect.

Hi @Leslie Pappas , I agree looking elsewhere to diversify my portfolio is a good idea. It is also challenging entering a new market since you want to be comfortable with your purchase. 

@Andrew Johnson there are two strategies that I can try to pursue. One is to continue in purchasing SFR since they seem to be more attainable and look about cash flowing $200/moth roughly every month to get about 10-20 properties. Or I can pursue a MFR and increase the amount of cash flow per door to get me to the monthly cash flow quicker.

What are your thoughts on the market right now and I see that you have a more favorable to increasing SFR rather than include a MFR in my portfolio.

Thanks @Scott Krone , I will reach out to them.

Hi @Peter MacKercher I am hearing that MFR are the way to go if you want to pursue real estate investing full time. Because of the reasons you mentioned. I also thing the MFR are attractive. My plan is to pursue REI full time. I just know that it will take me time to learn, get the capital and look for good deals. I currently have a money in my 401k that I can use if I decide to get out of the stock market and pursue REI 100%. It is just a huge leap in doing so.

Hi @Lane Kawaoka Lets connect.I would love to hear any advice you have.

Israel

I just did this six months ago.  Sold my triplex in L.A. and bought a 12-unit complex in St. Louis doing a 1031 exchange.  It made sense for me.  Couldn't find any deals in L.A. that would cash flow, and there were plenty in St. Louis.  I've noticed a pretty big spike in prices though in STL just in the last year, so the deals are getting further and fewer in between.  Hit me up if you have any specific questions.

Hi @ Israel R. if you're planning on pulling money out of your 401k to get a better returns, I'd recommend starting with turn key four families in "C" areas that have lower purchase prices and taxes. Another option would be the BRRRR method in "B or C" areas. I have a couple areas here in South St. Louis that would work well depending on how you're wanting to invest long term. Let me know if you would like to pick a time to discuss further.

Cheers

@Israel R. I have a six unit apartment deal on the south end of meridian kessler near the red line stop. A lot of the work has been done by my team but there's still room to add value. My last 3 deals have been 240, 250, and 302. I'm starting to sell some of my smaller deals. It's a good starter apartment deal that's relatively easy to manage.

@Israel R. I would caution against a 1031. I traded 2 properties for 9 a couple years ago and not I am regretting it because I want to trade up to a syndication which I cannot.

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