I personally like multifamily investing because of the cashflow, value add, and a little easier on the pockets if you have vacancies. I close on a 4 plex in Oregon this month, im currently looking for other multifamilies out of state.
I dont know much about single family homes. I havent really heard anyones opinion on why they prefer single families over multifamily. so if you could give me some reasons why single family homes are a better investing strategy over multifamilies? I dont want to rule out single families when lots of people make great money on them.
my goals are long term buy and hold cash flowing rentals.
@Patrick Flanagan First off, congrats on your first deal. I don't think one is necessarily better over the other. There are quantitative and qualitative considerations for each investor that goes into what they invest in. For me, I only have single family properties, but not because I prefer them necessarily. They were the deals I found and could structure as a cash offer. This was the purchase level at which I was comfortable for the investment objective I was pursuing. Offering cash gave me the competitive advantage against other offers. So for me, and I suspect a lot of "small time" investors, it was based on our personal financial resources and investing objective.
Now if I had a lot of capital that I needed to deploy, strictly speaking multi is the way to go when you do the numbers. Even a 4-plex that you're buying has an economy of scale aspect versus a SFR in that there is only one roof to replace. And you are able to transact one acquisition for 4 units. And, as you mentioned, if you have one vacancy, you are still at 75% of full revenue versus 0% with an SFR. These are big advantages that I, as an SFR investor, don't not enjoy. Advantages for the SFR investor - depending on your market, there are a lot more SFR investment opportunities than there are MF opportunities to choose from. And when you sell an SFR, you have a bigger buyers market to sell to since you can sell to investors and owner-occupant. Multi-fam only sells to investors, of which there are a lot fewer.
I am at a point in my life where I am not really in acquisition mode anymore. Plus I think the prices are a little crazy now. But if I was going to continue buying, it would absolutely be what you're doing, looking a small multi-unit properties from 4-plexes on up. I would be doing a 1031 with my SFRs.
Some obvious things that I would caution you on as a landlord. Be sure you have sufficient cash flow and cash reserves to handle maintenance issues. When I was a young man like you (assumed by your pic), I had 3 rentals by the time I was 23 years old. There was no internet and no BP at this time in the early 1990s to learn from. I had poor cash flow and no reserves. Maint issues crushed me and I had to dump all three properties. If I had done better math with cash flow and had a few thou at least in reserves, this would not have happened. I learned an expensive lesson. Please don't let this happen to you.
Best of luck to you,
Congrats on the journey so far. Just spent the weekend in Salem, OR, at a favorite little hotel we used to like staying at when we used to visit our son at Western Oregon University.
You look young enough that you have many years ahead of you. So one nice thing about MFH instead of SFH is you get more doors under management if you are funding yourself. Banks start to back off when you have too many properties under mortgages but they don't discriminate between the two.
We have a 4-plex, tri-plex and duplex up in downtown Everett, WA and have an option on another duplex there that we will likely close on in the next couple of months.
Out of state we did our first deal in NY near where our daughter goes to college. So she will live upstairs with friends while we rent out the downstairs to other students. So we actually make money by her going off to college. Can’t complain about that!
Great insight! Thank you for responding
Welcome. The other reason for buying 4 MFH all within a mile of each other has to do with REPS status. My wife works part time as a pre-K teacher and I am fortunate to have worked in the software industry for a long time and so have relatively high W2 income. We both want to retire in 10 years and live off the rental income, so my wife can get enough hours managing the 4 properties to qualify for REPS.
That then means that the investments are ‘active’ from a tax perspective and we can accelerate depreciation via cost segregation and offset that against my W2 while my income is still high.
@Patrick Flanagan , Again, congrats on your first deal.
I'd have to agree with the highlights that @Dave G. mentioned about SFH: more investment opportunities and a bigger buyers market.
Additionally, I really like the flexibility a SFH offers compared to multifmaily as far as a 'place to park capital'. For example, in 2018, we purchased a SFH as a rental. After a significant rehab, the home was worth 35% more than the original price. Between that value increase and appreciation in the local market (SLC, UT), we used a dirt cheap cash out refinance to fund the down payment for our next investment property. Fast forward to this year, and we are currently selling this trusty little investment in an effort to 1031 the capital gains into another investment. Recognize that these tools are available to MFH owners as well, however you lose 'flexibility when working with lenders, as well as your smaller pool of buyers.
Finally, multifamily prices are held in check by the standard metrics of CAP rate, IRR, CoC return, etc. A SFH can appreciate much quicker if the area is hot. People, myself included, overpay for their SFH since they will be living there!
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In a nutshell, single families can have longer staying tenants and possibly stronger appreciation. I say possibly very cautiously. For example, I had properties appreciate 15% last year just because other properties sold for more. I didn't do anything, it's just increasing prices, so that's kind of nice. From a competition standpoint, you're going to be competing against every investor and homebuyer, so competition is higher. It's also more liquid and you can convert into cash more easily by selling or refinancing.
Multifamily usually has stronger cash flow, but you control the appreciation rate through increasing NOI. From a competition standpoint, you'll be competing against few buyers, but the buyers might be more savvy. The seller is also probably more savvy too. The downside is that the tenants might not stay for long, and you might have more problem tenants. Again, "might," not definitely. If you need cash, it might be difficult to convert the asset to cash though.
I invest in single family right now, but I'm actively trying to get into multifamily more quickly. The opportunities there just seem to be more stable and make more sense. Though I think it's good to have a healthy mix of both.
Thank you for the info.
My biggest problem is trying to pick a market for single family homes. I read stuff on bigger pockets where people say “the area is a great market” like towns in Ohio, Missouri, or Tennessee. Then I read other stuff we’re people absolutely hate those markets. So it’s a little confusing on where to start my market search. ￼￼
@Patrick Flanagan there are lots of great markets and everybody has an opinion on every market. You just have to do your own DD to decide if it's a good market. I would first look at if the target market is within 30 minutes of a major metropolitan area with lots of diverse jobs. Large military bases and colleges are also good areas to take a look at too. This will help you identify that there is money in the area and stability. Past that, I would just look at purchase to rent ratios.
There are so many metrics people look into, but really I would advise just not to overcomplicate it.
For me; I want cash flow. I would prefer to invest in MFH, but have trouble finding deals that I can afford. I'm just starting out and don't have a lot of cash to leave in deals. So, I'm focused on BRRRR SFR's right now. Planning on building up a small portfolio then selling and investing in larger MFH deals.
I think a lot of it depends on where you invest. I live in Pensacola, the market down here is "HOT." But hot here means the cheap homes here are appreciating a few thousand a year. When I lived in California, even a crappy year, the homes appreciated tens of thousands per year. So, investing in a SFR could help build wealth a little faster because they aren't constrained by NOI like MFH.
For me, appreciate is nice but I don't plan on it at all. I look at ROI (cash left in a deal vs profit) and cash flow. I have certain targets to get me where I want and each deal is analyzed against that.
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