Anyone just stick to SFH instead of going to MFH?

5 Replies

The BS I deal with trying to get MFH (proformas where someone is trying to get you to pay an extra million off of imaginary numbers), unresponsive brokers or responsive ones who just try to shove whatever crap deal they think they can pawn off on you down your throat, etc.

Kris Krohn built a huge empire on SFH, bought below the median. I'm getting pretty close to 10 homes, as each time I sell one I use the proceeds to buy two, etc.

This strategy seems to be working better for me, and I'm hesitant at dealing with MFH at this point. Just because one does well in SFH doesn't mean they will do well with MFH.

Jack.

I'm in the same position as you and slowly doing the transition to MFR. I'm doing my first 4 unit now. My plan is to continue to do the SFH and then wait for the right MFR to pop up and then land on that deal.

@Jack B.

The barriers to entry for multi family are certainly larger than just money. I find it quite odd.

I personally see no problem with staying with single family if that works for you. There are multiple extremely large groups of investors who deal exclusively in single family, owning literally thousands of homes. No one could question their strategy or success.

@Jack B.

Hi Jack. You can read this article by @Matt Faircloth :

Single Family Home Investing: An In-Depth Look at the Pros & Cons

I have never invested in Single Family, only in Multi-Family with a one 2 family investment.

I find that the higher the number of units per building, the more it has to do with the NUMBERS rather than emotions.

For instance, SFRs which are usually sold as homes can change on a dime, as Matt pointed out, because of things that are related to the desire of a Home Owner looking for a home. Because SFRs are valued using Comps, this makes a lot of sense.

However, multi-family are valued using Cap Rates. So the dynamics are different. It's about the numbers. The higher the NOI, as long as the Market Cap Rate remains the same, the higher the value of the multi. That will not be true of a SFR.

Anyway, I believe there are some good articles out there including Matt's.

Originally posted by @Llewelyn A. :

@Jack B.

Hi Jack. You can read this article by @Matt Faircloth :

Single Family Home Investing: An In-Depth Look at the Pros & Cons

I have never invested in Single Family, only in Multi-Family with a one 2 family investment.

I find that the higher the number of units per building, the more it has to do with the NUMBERS rather than emotions.

For instance, SFRs which are usually sold as homes can change on a dime, as Matt pointed out, because of things that are related to the desire of a Home Owner looking for a home. Because SFRs are valued using Comps, this makes a lot of sense.

However, multi-family are valued using Cap Rates. So the dynamics are different. It's about the numbers. The higher the NOI, as long as the Market Cap Rate remains the same, the higher the value of the multi. That will not be true of a SFR.

Anyway, I believe there are some good articles out there including Matt's.

MFH are NOT valued solely based on cap rates. The future cap rate when you go to sell is determined by the comps of similar MFH nearby. The "NOI/Cap rate" valuation of MFH's is not entirely true, comps are still a factor to it....

Market cap rates don't stay the same, the go up and down as the value of the property expands based on comps just like SFH's do....

So the NOI is the only thing you control, the cap rate is not something you control, so in the end the value is still dependent largely on comps just like single family homes...

@Jack B.

I'm not sure we are or not are on the same page.

MFH prices are determined by Market Cap Rates which are determined by similar buildings in similar areas.

Of course Market Cap Rates don't stay the same, they are MARKET Cap Rates.

I'm not sure if I didn't explain myself correctly or if it's a misinterpretation.

BUT, to give an example, if a building was priced at $1 Million and has an NOI of $100k, the Cap Rate at Purchase is $100k/$1 Million = 10%.

In the Future, let's say there are 3 similar buildings, all with the same 10% Cap Rate, but your NOI is now $200k. You are using the formula to calculate FMV = NOI/Cap Rate or FMV = $200k/10% = $2 Million.

Let's say we are in the year 2020, 3 years in the future.

You want to sell your property. You analyze the nearest 3 similar buildings in your neighborhood. You determine that these similar buildings are at a 7% Cap Rate. Your NOI is at $200k.

You then use the formula FMV=NOI/Cap Rate = FMV = $200k / 7% = $2.86 Million.

So, now, in 2020, because similar Cap Rates are at 7% and your NOI increased to $200k, you can sell the MFH at $2.86 Million.

I never said anything about controlling the Cap Rate. You buy at a particular Cap Rate, but the control of the Future Cap Rate is determined by the Market, which is why I said "Market Cap Rate." Of course if I said that a Cap Rate is a "Market Cap Rate" it is controlled not by me but by the Market in the future.

OK... I beat this all to death.

Even the NOI can be beyond your control. After all, you can't determine how quickly Property Taxes and Insurance can be raised.

Imagine what is going to happen to insurance once a Major Hurricane hits and does tons of damage to the State? Insurance can spike, causing your NOI to fall dramatically.

Anyway... hopefully I made it clear this time! :)

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