Let's play devil's advocate
I've been recently looking for smaller apartment complexes in my area (DFW).
I understand the market is hot (some would say stupid-hot) but I can't shake the feeling I'm missing something.
So I'd like to play devils advocate against myself here and see if you could help me see the light or where my logic is flawed.
Option #1: smaller Multifamily with 30 units.
Let's assume that purchase price is about 1.5M and I can get $250 cashflow per door per month. That's a total of $7,500 per month or $90,000 annual which places our cap rate at 6% (market cap rates are 5-7 for B/C class these days)
Option #2: Four single family properties:
Simple math says that in order to get $7,500 / month I need singles that cashflows $1,875 / month. Let's use the 50% rule and get to $3,750
Use the 1% rule and we get to a purchase price of $375,000 each.
Now the simple multiplication of $375,000 X 4 = 1.5M
Soooo, head ache and paint of 30 lower end (B/C class) tenants or 4 higher end tenants ($375K in DFW are very nice houses in good neighborhoods)?
I know I skipped some of the math such as vacancies, turnover maint, appreciation etc but I wasn't sold on these being the major decision factor (please DO correct me if I'm wrong here)
What am I missing?
Does apartment complexes only make sense at larger units numbers?
What tips the scale either way?
