Transitioning into multifamily

[Hoai Nguyen]

I am hoping to get guidance on pros and cons of transitioning from SFH and small multi(<4 units) to larger multifamily. We currently own 12 doors. 2 quadplexes and 4 SFH. One of the quadplex we are under rehab with a good ARV so it triggered the thought of selling and taking proceeds and rolling into multifamily anywhere from 8, 10, to 20+ units.

Should I just stick to small and mighty with SFH and small multi or take the leap and slowly transition to larger multifamily. We dont want thousands of units, just about 20-30k monthly passive income. Is it better to do a larger multifamily or keep the smaller portfolio. I currently have a property manager so I would like to keep property management and not self manage. Wife and I are both W2 earners.

[Dave Foster]

@Hoai Nguyen, I'm right there with @Charles Seaman, other than asking yourself what aligns the most with your financial future.

Either direction you go, since you'd be selling an investment property, you would be able to do a 1031 exchange, which allows you to defer all of the tax and depreciation recapture. You can use the 1031 exchange to purchase larger investment properties or multiple smaller investment properties using all of the tax you would normally pay.

But I'd also do some additional modeling. The transition into large MF is very tempting. And it can be rewarding. But there is a point where the additional expense/effort doesn't equal the additional scale you get. You gotta go large enough that you really get the advantage of scale. Your smaller MFs can be purchased with conventional residential financing. Larger than that requires a commercial loan. Insurance costs will be different. As well as the type and cost of upkeep. And you need to make sure that a move to a 10-unit will really save you on management. If you're still having to go to the site to rent/repair/etc, then you may not be saving that much time. This is one of those things that sometimes sneak up on you if you don't really dig into your modeling