What property would you choose (1031)

Question

I’m in the process of identifying a replacement property for my 1031. I’m looking for multi family between $2-3million in RI, Mass and CT. I like apartment buildings personally. My realtor is sending me many different listings, many are 2-4 unit bldgs in Mass in thriving towns. These are obviously very high rent, low unit properties. For the same money, would you choose lower rent, more units or high rent, fewer units (2-4)?

Interested in opinions

Anthony Petrarca · Answer

@Brandon Ingegneri

Thanks, Brandon. I am finding nothing in RI! Going to tour a few bldgs 20-31 units each out in CT this week. Then in Mass a few days later.

Brandon Ingegneri · Answer

In my opinion, the highest yield with the lowest amount of servicing is the way to go.  If you can clear the same money with fewer units but a higher end property and clientele, I would personally prefer that.  If it takes a massive number of units to achieve better results, that would be the way to go.

Alina Trigub · Answer

@Anthony Petrarca

My choice would be a B area market with C to C+ property  with low market vacancy (up to 5%) and a higher demand for your property type's offering rentals. In other words, I'd stay in the "bread and butter" area, and avoid the extremes.

My best!

Anthony Petrarca · Answer

@Bjorn Ahlblad

My thought too. Thank you

Anthony Petrarca · Answer

@Luis Cortazar

Luis, those are my thoughts as well.

Bjorn Ahlblad · Answer

@Anthony Petrarca I would choose more units lower rent up to a point. A two million dollar duplex or triplex won't cash flow the way I want and a building full of 500 dollar tenants is way too much risk and work. So a large enough number of units that makes that 2.5 million dollar building perform as well as it possibly can.

Luis Cortazar · Answer

Hi Anthony!

I will drop my two cents here, but please keep in mind this is just knowledge as I do not have any rentals of my own, Im saving and searching for my market.

That being said! If I were in your position I would definetly go with more units and less rent.

Why?

We have been in an amazing bull market run. Credit worthiness is everywhere... but as Benjamin graham says the higher they rise the harder they fall. It is not a matter of IF, it is a matter of WHEN, and that nobody knows, which is why we as investors buy right. The market will correct it self, and the first properties to go vacant will be the high end rentals. Middle class Rick will realize he can move in with his pal into a smaller unit and save 3/4 of his money. Grant Cardone says money doesn't go away, it just shifts. Grant him self doesn't buy A+ Multifamily.

Also buying a multifamily with lower rents raises the possibility of value add. and that is more beneficially to you because that can create more equity in the long run.

I hope this helps!