multi family vs. portfolio of SFR's

5 Replies

I have purchased multi family properties and SFR's. I am now considering purchasing several townhouses being offered as one investment as a package. From my understanding (which is certainly inexperienced with this particular type of investment) the loan would include all 15 townhouses, but I would be able to have separate deeds for each one so that I could sell off one at a time if I wanted to. This seems much more flexible as far as exit strategy goes. Can anyone add additional information that may help me to weigh out whether I should consider this option, or stay with multi units instead?

You usually have a blanket loan for the townhouses. These are popular with condo conversion properties where they were turned into multifamily rentals but now make sense to sell at a higher price one by one.

The loan agreement will usually spell out that for each one you sell they release the lien on that one property and so much of the sale has to go down to retire the overall loan out of the proceeds. 

So what the lender is basically saying is they will not allow you to take all profit and leave a high loan balance while releasing some of the collateral. They want the balance to get paid down in proportion to the number of properties left.

@Joel Owens  thanks so much for the clarification.  Even though I wasn't especially clear with my question, you knew what I meant!  As I have been researching this type of investment on BP, I have come across information that steers me away from these types of condos/townhouses that are sold in "packages" from the developer.  These posts have warned about the other properties in close proximity, and how pm's who may not be as attentive to their properties as I am can really allow the neighborhood to get run down.  I know that this would be the same scenario with an apartment building (my comfort zone) but if I'm concerned with resale value, who's going to want to buy in the middle of renters, especially if they have no pride of ownership etc.  Do you have any other insights about this type of thing?

Hi Anita,

Plenty of options.

Really depends on the capital you are working with?? Do you have 500k,1 million, etc. cash to invest?? What kind of annual cash on cash return are you expecting with your investment??

I favor control of the development. You want to control the whole look and feel of the development. This way you are not at the mercy of  external forces.

Portfolio of SFR's you have diversity but you have houses spread out all over so PM is difficult and doing repairs and sourcing materials is hard because each house was built in different era and has different layouts and bed and baths.

The landlord tenants laws might vary and court system from city to counties as well.

For this reason I do not like portfolio of SFR's but that's just me.

Hi @Anita Oakley  ,

I definitely agree with Joel on the points of multiple SFH's being more of a headache to manage (and often more expensive per door). The upside, however, is that if you're in an area where neighborhood quality changes within very small areas covering multiple areas somewhat diffuses your risk. That, however, has to be weighed against the additional cost and time.

In regards to the development, Joel also hit the nail on the head with being able to control the development and final product. When larger companies convert, they typically create an HOA and control all of the seats until they sell a certain % of units and then slowly transition the control/management over to the owners. This way they can be in charge of the look to ensure the future buyers (or renters if they can't sell) don't adversely affect their efforts). If you're renting, this isn't really an issue for you but still something that you will want to keep an eye on in the market (as you would if you owned an apartment complex anywhere).

Finally, surprisingly a lot of people are willing to buy in a owner/renter mixed area. Homes like this are typically less expensive than all SFH neighborhoods which open up them up to a larger pool of owners.

Justin 

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