I currently own 4 duplexes, one condo, and one quadplex.
My business partner and I have roughly $1 million in cash that we would like to invest quickly to get some return on our money.
Should we stick to the duplex here and there, or should we buy an apartment block? What are the pro's and con's of each?
Apartment Building: (all thing being equal)
Pros: one roof, one boiler, one location.
it is easier to justify price with income approach valuation. So if you can find a high vacancy building, make some repairs, and get it to 90% or 95% occupancy, you just increase the value of the building.
When is time for you sale a lot easier to liquidate too
Because it is one building, if the building ever catches fire or becomes infested with bedbugs (it can happen), the probability of loss of income is high.
Duplex: (all thing being equal)
Pros: you can find inexpensive buildings; the price is not based off of the income it generates but similar sold properties in the area.
Cons: when you get too many if become very difficult to manage and sale as a package.
If you have a sole relation with a bank, they might only allow a limited number of tax-keys per person when it comes to financing and refinancing.
How do you value your time? One transaction, one project compared to multiple. I would go based on the deals that I am finding but would focus on the larger buildings. Economy of scale wins in my book.
What is your exit strategy? Are you in this until death do you part or do you want something liquidable? A SFH or 100 SFH's will be much easier to sell than a 100 unit apartment building however the CCR will be far better for the 100 unit apartment building. It all depends on how liquidable you want to be.
It depends on the #'s in my opinion, which has the better value/cashflow for your money?
It seems like your doing very well to me given your current assets so why buy an entire block unless the #'s and dollars make sense, just so you can say you own a block?
I would think the block price will be higher than your current strategy of buying the same # of units in separate locations just for the convenience and ego factor?
Also, are you set up to manage an entire block?
Are there any fears of something happening to the entire block at once that could be very costly? I am not sure about Florida or your city but do they ever mandate changes for anything a block at a time that would hit you all at once?
Do you have code enforcement? If so, the properties might be new now but not down the road. They could site you on all four streets in a day. Chances are you could get them to work with you but can you imagine the cost.
WHY is the entire block for sale??
What if the city decided to do massive road work changes right beside your block? Would it cause several vacancies all at once due to frustrated tenants?
Just thought of some of this stuff for consideration, hope it helps. I would buy a large complex in a heartbeat but an entire block would be another story in my opinion.
I agree with @Nicholas Miller . Depends on liquidity.
@Jared K. By an entire block I meant an apartment complex, there are a few complexes I am eying that are between 30-45 units
@Zamir Kazi Oh, then that is a different story. In some cities such as Detroit people do buy blocks so that is what I thought you were referring to. I believe the more units in one location the better.
The best way to achieve economies of scale by maximizing unit numbers in the same property.
I agree with all of the above, however if I had 1 million to investment I would focus on a 50 plus unit property and leverage the debt.
One thing that wasn't mentioned is that it can be a pain in the butt to close on 40 duplexes vs. 1 building. I often see portfolios sell at a discount for this reason. Not to mention the acquisition process.
To me less with more is better then more worth less (individual units vs. larger Multifamily).
For buy and hold, go with the complex. Quality on-site mgt will be a huge blessing. Valuation's based on your numbers, not a house down the street. 4 green houses, 1 red hotel! Good for you @Zamir Kazi ! Got some units and more $ to invest than most!
Smaller SFRs or multifamily's would be hard to manage, liquid and more time involved from the landlords. Bigger multifamily (>5 units) would mean less time managing, higher potential of value appreciation and refi opportunity after stabilization. Why you want to buy 20-4- units, with 20%-25% cash down of 1 million and leverage the rest, you can buy building worth 3-4 million which means that is like more than 100 units class B/C apartments. Of course it depends on location.
Complexes all day! It's all about economies of scale!
I like complexes simply because of economies of scale. I think it depends on what you already have in your portfolio, it is good to have some diverse asset types in your portfolio to provide some liquidity, which you already have. If I were you I would go for an apartment complex now.
It all goes back to what your priorities are. SFR's have greater potential for appreciation beyond the cash flow they generate simply due to end consumers that don't care about cash flow and want a nice place to live. I qualify that statement with the fact that it depends on what class of SFR you're looking at. Likewise, your appreciation and liquidity of a MF will depend on trends in market rents and investor demand which affect the cap rate the property will trade at.
Some say MF is easier to manage but you are entirely dependent on the property manager who can make or break your investment. On the flip side my group has 12 single family homes with a solid property management company and it is hassle free.
There are two sides to every coin in this debate and no right answer. It just depends on what your priorities are.
@Zamir Kazi what are your goals and how much active involvement do you want to have with your portfolio?
I think you should jump into the apartment as you can force value do rent raises and there are several other cons and a decent I think cash on cash return assuming your not using financing but with that much capital you could finance a pretty big deal if you used that as a down payment . There are great apartment deals out there you just need to make sure the numbers make sense and it is a profitable deal duplexes are great to but I personally feel like it's just more potential in apartments and your return would be greater everything would be situated in one location although if you used financing on your deals you could get a substantial amount of duplex deals going and you could own some out right you would just have to look at then numbers and cash flows for instance would you be hiring a property manger to manage all those duplexes were as they could mange that apartment building
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