Next Step? Join syndication, buy multi-fam, or cont. OOS SFR...?

Question

I'm at a crossroads on what to do next, I get so much info from BP, BP podcasts and other podcasts. I read a lot online on what others are doing and the pros and cons of each choice. With so much information, it really has me mixed on what to look into next. I have a mix of local California SFRs and OOS turn keys (4). In the last year and a half, I bought 4 OOS SFRs (3 turn key and 1 off mls), all are doing good for cash-flow. 2 are in Birmingham, AL and 2 are in Detroit, I am actively looking for the next OOS SFR, the cash flow is hard to pass on.

My dilemna is should I go for the next level up and look into a medium size multi-fam (12-30 units maybe?) in the mid-west, join syndications that open up to much bigger deals, or continue OOS SFRs that cash flow? I like the idea of joining syndications and working with a group with a proven record.

What would a fellow BPer do to scale up their portfolio? I am leaning towards more OOS SFR for adding cash flow (my comfort zone) and/or joining a syndication or two...sometimes too much information and researching is a curse lol

Ronan Donnelly · Answer

Hi @Johnny Lau, I went down a similar path to you whereby I built up a portfolio of SFH’s and subsequently moved to multifamily syndication, firstly as a LP and subsequently as a GP.

I think that the SFH’s are a great way to get started and to see the power of real estate as a means by which to generate wealth via cash flow, equity upside and tax benefits. I ultimately decided to move away from SFH’s because the amount of work required to continue to scale wasn’t feasible alongside a full time job.

Investing passively via syndicates opened my eyes to how I could benefit from real professionals sourcing, acquiring, doing due diligence and managing my asset all without any ongoing time commitment from me. I particularly like the value-add strategy since it puts equity growth within my control.

At the end of the day you can be successful in real estate investing 50 different ways so it just comes down to deciding which strategy is the best fit for you. Good luck!

Account Closed · Answer

What seems to never be mentioned with multi-family is how long it takes to find and acquire a good one.

I was taught the "time value of money" and I can buy 6 or 7 cash flowing properties in the time it takes a good syndicator to locate, do the "due diligence" and finance a good multi-family. Then of course it depends on whether it is a "cash flowing" or value add opportunity and the expertise, sophistication and experience of the GP to make things happen. That's putting a lot of trust in someone you don't know..

Nothing wrong with buying into one where the front end work has already been identified and completed. But I've talked to a bunch of people at multi-family events still waiting for a good one to be identified, after waiting a year. There just aren't that many opportunities.

And for many multi-family the "long term" play is only 5 years because that is how financing works. If the market has a down turn when you need to sell or refinance you can lose your investment. Seems too risky for me.

However, I can buy an "off market" 3 bed 2 bath in Phoenix or Mesa for very little down, no bank needed using Subject To, take over the loan, sell it on Lease Option and get a $20,000 Option fee along with cash flow generally of $500 per property.

I get the principal pay down, tax write offs, depreciation, Option fee and diversification. If the market turns, it doesn't matter since I am taking over long term financing. And it is easier to refinance or sell single family homes if I choose to, than trying to refinance a multi or sell a multi in a down market.

Not that multi-family isn't good, it just isn't "good" often enough to do any planning if you have a chunk of money to invest. Your money sits on the sidelines for a long time until a good opportunity comes around.

Alina Trigub · Answer

@Johnny Lau

A lot depends on your personal situation:

1) How much time can you and want to devote to the real estate investing as a business. While TK may require little of your time, switching to an active role of a syndicator or even buying a commercial MFH will require more time from you.

2) Your personal "Why" will play a significant role in executing the plan of being an active real estate investor. If it's strong enough, it will help you push through the obstacles.

In general, you need to decide whether active or passive route is a better option in your personal case.

Here're a few more resources to help you make a decision:

https://www.biggerpockets.com/member-blogs/10850/87253-should-i-scale-my-investment-from-single-family-homes-to-multifamily

https://www.biggerpockets.com/member-blogs/10850/86626-the-pros-and-cons-of-investing-via-real-estate-syndication

https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

Todd Dexheimer · Answer

How many single families will it take to get to your financial freedom number? Remember to add in admin cost on your end the more you buy.

With the right syndication, you should have very little time involvement and a property that should be able to beat SF returns. You do still have risks of course that the property will not perform, but with a solid property and business plan, those risks will be minimized.

I have invested in 1-4 unit properties, 10-30 unit properties and 100+ unit properties. All strategies can make a lot of money, but the key ingredients missing in the 1-4 family strategy that you have set out is that there is little no value add component and no large scale.

Here are a few articles on syndication:

https://www.biggerpockets.com/member-blogs/10145/83067-limited-partner-s-guide-to-investing-in-the-right-deal

https://www.biggerpockets.com/member-blogs/10145/73373-opm-how-to-syndicate-with-success

https://www.biggerpockets.com/member-blogs/10145/72118-syndication-the-ins-and-outs-of-real-estate-syndication

Todd Dexheim

Mike Krieg · Answer

@Johnny Lau My journey was similar to yours. I chose to invest in multifamily after many headaches attempting to scale my SFR and MF portfolio. Here is the investment thesis I grew to adopt over time

Seven Reasons I Prefer To Invest in Multifamily Apartments

I like this route because I have MUCH LESS legal liability as an LP investor, no landlord responsibilities, and can focus mainly on being a capital manager. It scales well. Now I'm involved with Self Storage and Manufactured Home Communities as well. My objective is to hold a diversified portfolio of high quality assets, managed by the best management companies, in the best and fastest growing markets in the country. Working well so far.

Finally, I heard something last year I liked a lot. FOCUS is Follow One Course Until Success. I think it really important to choose a strategy that fits you and your lifestyle and focus on it.

Calvin Ozanick · Answer

I would love to talk to you about the Wisconsin market. The SFR cashflow is in a great spot and the rents are staying high. There are tons of large businesses moving into the area which is also upping the rents and values! Let me know if you have any interest in the area at all!

Next Step? Join syndication, buy multi-fam, or cont. OOS SFR...?

Next Step? Join syndication, buy multi-fam, or cont. OOS SFR...?

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